Competition in the banking sector and economic growth: panel-based international evidence

This paper employs panel techniques to empirically examine the link between the competitiveness of the banking sector and real economic growth, using data from a sample of OECD economies during 1997-2010. We employ a dynamic GMM model to find that an increase in the efficiency of banks driven by fiercer competition is robustly associated with higher real growth. The issue of Granger-causality is then explored by means of a panel- based testing procedure addressing heterogeneity. While there is a strong evidence of causality running from real growth to banking competitiveness, a bi-directional causality appears clearly only for lags higher than 1.