• Re-visit the Market Competition of the Banking Industries in Eight East Asian Countries

Abstract

This paper investigates the degree of market competition in the banking industries of eight East Asian countries over the period of 1994-2008, using the ‘H-statistic’ proposed by Panzar and Rosse (1987). Differing from previous works, this paper applies the newly developed model, i.e., the censored stochastic frontier (CSF) model, to test whether these markets under consideration have achieved the long-run equilibrium. The model is superior to the conventional one that requires researchers adding unity to dependent variable ROA for all observations to force the transformed dependent variable having a positive value and being able to take the natural logarithm. Evidence is found that all of the banking industries in our sample are characterized as either monopolistic, or perfect, competition, intead of monoply, or oligopoly. The CSF model confirms that six out of the eight banking markets are already in the long-run equilibrium, which validates the use of Panzar-Rosse model. Conversely, the employment of the conventional approach leads to a rejection of the long-run equilibrium in six out of the eight markets.

Keywords: Degrees of Competition, PR Non-structural Test, Censored Stochastic Frontier Model