Abstract
This paper aims to investigate the impact of banking concentration on investment and economic growth for the Jordanian economy. It utilizes annual sample for the period between 1980 and 2018. The study examines the effectiveness of the Structure-Conduct-Performance (SCP) hypothesis and the other Efficient-Structure (ES) hypothesis for the case of Jordan. The Augmented Dickey-Fuller (ADF) and cointegration tests are used and the results indicate to the appropriateness of the following econometric techniques: Autoregressive Distributed Lag Bound test (ARDL), the fully modified OLS (FMOLS) and generalized methods of moments (GMM). The estimation results indicated to negative relationship between concentration index and both investment spending and the rate of real economic growth. The study recommended that the Central Bank of Jordan should continue to allow new banks to enter the banking market to reduce the impact of concentration as much as possible to achieve competitive gains in the Jordanian banking sector.Keywords: Banking Concentration, FMOLS, GMM, Investment, Economic Growth.JEL Classification: G210DOI: https://doi.org/10.32479/ijefi.10891
Highlights
IntroductionDeterioration of security conditions has increased the migration movement from these countries to Jordan; e.g. more than 1.3 million Syrian refugees flowed into Jordan due to the poor security status in Syria since 2011
The Jordanian economy faces many economic obstacles and challenges caused by internal circumstances such as the poor GDP growth and the decline in domestic and foreign investments as well as external circumstances such as the political, security and social instability in the neighboring countries i.e. Iraq, Syria and Lebanon, and other countries such as Yemen and Libya.Deterioration of security conditions has increased the migration movement from these countries to Jordan; e.g. more than 1.3 million Syrian refugees1 flowed into Jordan due to the poor security status in Syria since 2011
Error term are stationary on the first difference, and the test results were according to the following Table 2: investment variable (It) is shown through the (ADF) stationary test table that most variables are stationary at the level, such as the inflation gap, the real lending rate (Rt), the growth rate in GDP (Yt), the population growth rate (Pt), and Real Investment as Gross fixed capital formation at constant prices(It), while the variables of banking concentration (Ct), the financial deepening with its three types (F.deept1, F.deept2, F.deept3), and the index of economic openness (Ot) were stationary at the first difference
Summary
Deterioration of security conditions has increased the migration movement from these countries to Jordan; e.g. more than 1.3 million Syrian refugees flowed into Jordan due to the poor security status in Syria since 2011. The real GDP growth was estimated at low rates: 2.2% and 1.9% in 2017 and 2018 respectively. The Central Bank estimated higher growth rates of 2.2% and 2.4% for the years 2019 and 2020 respectively. The Central Bank stated that higher growth rates were estimated based on the success of the government policies in maintaining monetary and financial stability despite the slowdown of the global economy (Central Bank of Jordan, 2019)
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