The Evolution of Competition in Banking in a Transition Economy: An Application of the Panzar-Rosse Model to Armenia

摘要: Abstract The structure of the banking industry typically undergoes fundamental changes during transition to a market economy. This research employs method suggested by Panzar and Rosse (1987) evaluate empirical evidence on evolution competitive in Armenian its recent possible forces--market power or efficiency/contestability--that underlie that evolution. results point monopolistic competition. reduction bank numbers simultaneous increase concentration is accompanied decline competition intensity, which supports market-power hypothesis JEL Classification: L1, L8 Keywords: competition; markets; Panzar-Rosse model, transitional economy 1. Introduction system has experienced years as it making very liberal regulatory approach 1990-1993 resulted proliferation risky short lived banks and, ultimately, large number deceived depositors. more strict banking, implemented since 1993, seeks strengthen improve soundness practice meant elimination about half pre-existing banks. At initial stage reforms, comprised only small local few big former Soviet These were too weak support development commerce scale necessary for rapid development. Hence, new rules game adopted aimed at modernizing sector. framework permitted trend toward internationalization continue thus led greater involvement foreign system. This, turn, intensified pressure It this reason Central Bank Armenia (CBA) policy strengthening means forced capitalization, i.e., increasing minimum capital requirements, consolidation. In light, two questions naturally arise. first asks what sort industrial evolving toward. second kind should be light evolutionary process. paper reviews using data from 1998-2002 employing tests developed (PR below; See also Gelos Roldos, 2002. Subsequently, issues are linked test validity either efficiency/contestability banking. To preview briefly, we find can characterized monopolistically competitive. I show associated was intensity competition, supporting hypothesis. result contrasts with other emerging countries where consolidation has, largely, not yet been translated into pressures. However, experience consistent those European fierceness implication "infancy" period over officials wary permitting process proceed much further. Section 2 provides literature overview. section 3, offer an overview structural 1995-2003. 4, describe estimation procedures. 5 then presents main results. Concluding remarks follow 6. …