Abstract:
This paper examines the causality between concentration in banking
industry and economic growth by using data across 15 countries
named in "Iran outlook in 2025", over the period 2004-2011. Our aim is
to assess whether the economy grows more or less rapidly in areas
where the banking sector is more concentrated. The topic is motivated
by the fact that the causality between concentration in banking industry
and economic growth has not been examined in Iran and the countries
named in Iran Outlook 2025. In order to investigate the relationship, the
standard Granger causality test and Hsiao’s version of Granger
causality test are employed in this paper. The results show that banking
concentration is negatively associated with economic growth. Besides,
the evidence suggests that economic growth has a positive effect on
bank monopoly power.
Machine summary:
"On the other side, it can be admitted that some market power -associated with larger banks and related to the need of coping with information asymmetries- increases financial stability, and thus helps economic growth in the long-run.
Cetorelli and Gambera (1999) provide evidence that bank concentration promotes the growth of those industrial sectors that are more in need of external finance by facilitating credit access to younger firms.
Using an extension of the Rajan and Zingales dataset, considering both cross-industry and cross-country characteristics, Cetorelli and Gambera (2001) study whether, for a given size, the market structure of the banking sector has empirical impact on economic growth.
Through studying Egypt's financial structure and its relation to total factor productivity, Bolbol, Fatheldin, and Omran (2005) suggest that bank-based financial development indicators has a positive effect on growth only when associated with higher per capita income.
As already stated, this paper investigates the presence of a causality relationship between the observed level of banking concentration and economic growth in the countries named in Iran Outlook 2025.
7- Conclusions This paper investigates the causality direction between banking concentration and economic growth in Iran and the countries named in Iran Outlook 2025.
More specifically, in order to study the causality between the level of concentration in the banking industry and economic growth in Iran, we employed granger-causality tests.
The results also show that in Iran and the countries named in Iran Outlook 2025, there is a bilateral causality relationship that implies the important role of banking concentration on economic growth."