Effect of competitive behavior of foreign banks on competition of domestic banking sector in Sri Lanka (original) (raw)

2016

Abstract

Entry and operation of foreign banks is generally thought to have favorable effects on the development of host banking systems, through increased competition. By using an extensive set of panel data for the period 1996-2010, the present paper tries to empirically test the effect of foreign bank competition on the competition of the domestic banking sector of Sri Lanka. The degree of competition measured with Panzar Ross H statistic lends support for a moderately competitive domestic banking sector and low competitive foreign banking sector in Sri Lanka. More interestingly, the H statistics estimated for two sub sets depicts a counteraction in competitive behaviour. Contrary to common wisdom the results of the present study further indicate that, for the period 1996–2010, competitiveness of foreign banks has negatively affected on the competitiveness of the domestic banking sector in Sri Lanka

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