IMPACT OF FINANCIAL LIBERALIZATION ON CONCENTRATION AND COMPETITION IN THE GHANAIAN BANKING SYSTEM: A PANZAR-ROSSE ANALYSIS

Abstract

This paper empirically investigated the evolution of market concentration in Ghana. It tests market competitiveness in banking systems post financial sector reforms. Using unbalanced panel data of 24 banks in the period 2003-2012, a period characterized with deregulation, liberalization and consolidation of the banking sector in Ghana. Market concentration in the Ghanaian banking sector is measured by the Hirschman-Herfindahl indices as well as CR3 and CR5 with this panel data. Both CR3 and CR5 had a decreasing trend indicating falling market concentration ratios and increasing rate of competition in the Ghanaian banking industry. The degree of competition based on the revenue elasticity to input approach under Panzar-Rosse framework indicates monopolistic competition in both interest based market and total revenue markets relative that in the non-interest based market in the Ghanaian banking industry.