Competition and financial institutions and markets development: A dynamic panel data analysis
Panel data from 140 countries over 2000-2014 period, allow to investigate the relationship between market competition and financial development, using the new IMF- FD index covering financial institutions and markets access, depth and efficiency. Three competition indicators are employed, i.e. Boone, Lerner and banks concertation, in addition to control of corruption and others control variables. Dummies are added to assess the relationship over 2008 financial crisis. Data are gathered from IMF-FD, World Bank -WDI, GFD and WGI. A dynamic panel GMM model is employed. Strong evidence of the positive impact of market competition, as measured by Boone index, on financial institutions and markets development is found, while banks concentration has a damaging effect on FD. Interestingly, none of our competition indexes affects financial institutions returns, which hold even over 2008 financial crisis, likely at the expense of depth and access in developing countries. Institutions, as proxied by control of corruption, have broader positive impact on FD particularly on financial markets. These findings have important implications for developing countries keen to foster the development of their financial system.