Banking Competition, Convergence and Growth Across Macro-Regions of MENA

This paper examines convergence of bank competition in Middle East and North Africa (MENA) and the impact of bank market power on growth. Using a sample from 16 countries over 2005-14 and forming macro-regions based on oil export allowances to capture intra-region country differences, our results suggest that banking competition has increased over the period under investigation. In addition, using alternative tests, we find clear evidence of convergence in banking competition across the three macro-regions as well as in MENA as a whole. Further, our evidence indicates that financial development facilitates economic growth through greater access to external finance in MENA especially in industrial sectors that are more dependent on external financing. Finally, our analysis points to a positive and significant effect of bank market power on economic growth in MENA and all macro-regions. This is in line with the relationship lending literature which suggests that in a competitive environment banks will be less willing to avail finance to informationally opaque firms.