Do Financial Sector Reforms Improve Competition of Banks? An Application of Panzar and Rosse Model: The Case of Ghanaian Banks

Abstract

The study investigated the market structure of Ghana’s banking industry and determined whether the market structure has been changed after the financial restructuring. This study specifically measures the degree of competition of the banking system in Ghana by using the H-statistics. Various studies on the degree of competition were reviewed. This study employs a widely used nonstructural methodology put forward by Panzar and Ross (1987) —the H-statistic—and drawn upon a comprehensive average annual data from the various issues of the Bank of Ghana annual reports from 1988 to 2011. Based on the reported H-statistic, it can be concluded that Ghana’s banks are operating under perfect condition. However, the test for a change in competition status at the time of liberalization was not significant, indicating no evidence of a change in competition as a result of liberalization. This study has extended and strengthened some earlier results on bank competition in Ghana. However, the results of this study are different from the study undertaken by Buchs and Mathisen (2005), who found Ghanaian banking markets to operate under monopolistic conditions.