Bank Competition, Financial Dependence, and Economic Growth in the Gulf Cooperation Council

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

Linking Bank Competition, Financial Stability, and Economic Growth

“…In model 3, economic growth is negatively associated with non-performing loans at the 1% level, implying that bank instability (insolvency risk) harms economic growth. The results are consistent with earlier studies (Tabak et al, 2012;Caggiano & Calice, 2016;Gaffeo & Mazzocchi, 2014;Claessens & Laeven, 2005). Further, economic growth falls by 2.8% on average during the crisis.…”

“…According to Caggiano and Calice (2016), competition among banks affects economic growth in two ways: First, banking competition facilitates access to credit for small and new firms, which is important for economic growth. Second, companies dependent on external financing to run their operations are associated with slow patterns of economic growth; an increase in market power may hasten that economic growth (Hamada et al, 2018;Diallo & Koch, 2018;Mitchener & Wheelock, 2013).…”

Bank competition, concentration and EU SME cost of debt

“…Under the banking context, increased market power could result in restricted loan supply and manipulated lending rates, thereby aggravating borrowers' financing constraints (Ryan et al, 2014). On the other side, a decrease in bank's market power enhances competition and increases the overall efficiency of a banking industry, therefore facilitating credit access (Meslier et al, 2020;Love and Peria, 2014), and ultimately leading to a stronger economic growth (Caggiano and Calice, 2016). While, the latter hypothesis (IBH, Petersen and Rajan, 1995) conjectures that, in the presence of information asymmetries and agency costs, fiercer competition may reduce the incentives of, or make it more costly for banks to invest in private information acquisition, and reduce the quality of screening and monitoring.…”

Bank Competition, Concentration and Economic Growth: A Panel Analysis of Selected Banks in the Nigeria Banking Industry

“…Recent empirical studies, such as those conducted by Amidu and Wilson (2014), have found that competition in the financial sector encourages banks to innovate, reduce product prices, and improve product quality, thereby increasing consumer choice and growth. According to Caggiano and Calice (2016), competition in the banking sector can have a positive impact on economic growth in two ways: first, it makes it easier for small and new businesses to obtain credit; and second, it allows financially dependent businesses to grow more quickly. Their argument is that the advancement of these technologies has an impact on economic growth.…”