1. Does bank competition spur growth? Evidence from West African countries
OLUDELE FOLARIN
Department of Economics,
University of Ibadan, Ibadan, Nigeria

2. Outline Introduction Literature review
Model specification, data and Methodology
Empirical evidence
Conclusion

3. Introduction
The financial sector in Africa is dominated by banks (Allen, et al. 2011).
The allocation of resources within an economy is partly influenced by the activities carried out by banks (Freixas and Rochet, 2007).
Also, banks influence the level of capital accumulation and by extension the level of growth (Levine, 2005)

4. Figure 1: Growth Performance across region of the world
Oludele Folarin
Figure 1: Growth Performance across region of the world

5. Introduction
The success recorded can be seen as the payoff for the various economic and financial reforms that were implemented since the 1980s (Allen, et al., 2011).
The submission by Allen, et al. (2011) can be build on the findings by Fowowe (2008).  Fowowe (2008) found that financial liberalization causes an increase in economic growth.

6. Introduction
While the central goal of financial liberalisation policies is to ensure that financial resources are efficiently allocated to the most productive investment, it also fosters bank competition through the removal of entry barriers into the banking industry (Claesens and Laeven, 2004; Delis, 2012).
Similarly, Fosu (2013) argued that the financial reforms in Africa encourages the presence of foreign banks, thus fostering the level of competition.

7. Introduction
This study, therefore, seeks to investigate the effect of bank competition on economic growth in selected West African countries.
While a large proportion of existing studies focused on developed countries, this study complements and extends the two existing studies on Africa by Idun and Aboagye (2014) and Banya and Biekpe (2017).

8. Literature review
There are two strands of the literature when it comes to the effect of bank competition on economic growth (Cetorelli, 2001; Liu, et al., 2014; Banya and Biekpe, 2017).
The first strand, the traditional view states that more bank competition leads to faster growth given that market power is associated with rent extraction and x-inefficiency. (Pagano, 1993; Guzman, 2000)

9. Literature review
The second strand is the relationship lending advocators. They argued that market power is beneficial. When market power exists, banks have more incentive to invest in the acquisition of soft information by establishing a close relationship with borrowers over time.
Since, competition lowers banks incentive to invest in the acquisition of information  (Petersen and Rajan, 1995; Boot, and Thakor, 2000; Marquez, 2002).

10. Model specification, Data and Methodology
Model specification 𝑌 𝑖𝑡 = ∝ 0 + ∝ 1 𝐵𝐶 𝑖𝑡 +𝜃 𝑋′ 𝑖𝑡 + 𝜀 𝑖𝑡 (1) Where Y is the growth rate of per capita income (GDPPC); BC is Bank competition, and X is the vector of the control variables. investment (INV), trade openness (TRADE) and institutions (LAW) The index corresponds to the elasticity of the relative profits to marginal cost, which explained the reason for its wide acceptance in recent bank competition studies. More negative value of the index connotes an increase in bank competition.

11. Hypothesis
Since, the theory is ambiguous on the effect of bank competition on economic growth. If ∝ 1 <0, it suggests that bank competition spur growth, thus supporting the market power hypothesis (Pagano, 1993; Guzman, 2000). If ∝ 1 >0, bank competition harms economic growth, thus lending support to the information hypothesis, which is rooted in relationship-lending (Petersen and Rajan, 1995; Marquez, 2002).

12. DATA
The data for the study covers the period of 1998 to 2015 for twelve (12) West African countries, namely Benin, Burkina Faso, Cote d'Ivoire, Gambia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone and Togo.

13. Variable definition and source of data
Measurement
Data source
GDPPC
Growth in real GDP per capita
World Development Indicators (WDI) BC
Boone Index: Bank competition
Global Financial Development Database (GFDD)
INV
Investment: Gross fixed capital formation as share of GDP
TRADE
Trade openness: Sum of import and export divided by GDP
LAW
Rule of Law
World Governance Indicators (WGI)
CREDIT
Domestic credit to private sector provided by banks as share of GDP

14. Descriptive statistics
Variable
Mean
Min
Max
Standard deviation
Observation
GDPPC
1.719
-3.207
12.195
2.475 72 BC
-0.127
-1.647
0.353
0.309
INV
20.052
2.234
56.423
9.265
TRADE
68.122
27.686
20.865
LAW
-0.621
-1.434
0.114
0.410
CREDIT
14.657
2.107
36.088
6.954 69

15. Correlation Analysis
Variable
GDPPC BC
INV
CREDIT
TRADE
LAW 1
-0.395***
0.158
0.320***
0.074
-0.076
0.364***
-0.105
0.083
0.418***
0.468***
0.082
0.342
0.330***
0.077
-0.060
Note: *, **, *** indicate 10%, 5% and 1% respectively.

16. Bank Competition (Boone Index) and Growth in income per capita in West African countries   

17. Bank Competition (Boone Index) and Growth in income per capita in West African countries excluding Nigeria

18. Methodology
we take the advantages associated with panel data by exploring both the cross-sectional and time dimension of the dataset used in the study.
System Generalized Method of Moment (GMM) estimation procedure developed by Arellano and Bover (1995).
We followed the approach used by Ajide and Raheem (2016a,b) by adopting 3-year non-overlapping intervals (NOI).

19. Empirical result Variable 1 2 3 GDPPC(-1) -0.228* (0.113) -0.186
(0.119)
-0.256**
(0.096) BC
-4.889***
(0.737)
-4.833***
(0.694)
-5.544***
(0.790) 
INV
0.073**
(0.026)
0.101***
(0.025)
0.049*
TRADE
-0.033*
(0.015)
LAW
1.716
(1.065)
No of Obs. 60
No of instruments 12 13
Wald test of joint significance
[0.000]
AR(1)
[0.040]
[0.037]
[0.031]
AR(2)
[0.630]
[0.749]
[0.508]
Hansen test
[0.193]
[0.301]
[0.199]

20. Empirical evidence Variable 1 2 3 GDPPC(-1) -0.061 (0.164) -0.064
(0.184)
-0.075
(0.173) BC
-7.887***
(1.585)
-8.256***
(1.438)
-8.447***
(1.614)
INV
0.108**
(0.040)
0.124**
(0.050)
0.083
(0.051)
CREDIT
-0.012
(0.049)
0.035
(0.069)
-0.017
(0.055)
TRADE
-0.031*
(0.015)
LAW
1.193
(0.849)
BC*CREDIT
0.158**
(0.070)
0.183**
(0.063)
0.167**
Constant
-0.139
(1.114)
0.778
(1.067)
-0.639
(1.097)
No of Obs. 58
No of instruments 14 15
Wald test of joint significance
[0.000]
AR(1)
[0.095]
[0.093]
[0.108]
AR(2)
[0.294]
[0.311]
[0.261]
Hansen
[0.210]
[0.233]
[0.811]

21. Conclusion
Our findings showed that bank competition spurs economic growth, thus supporting the market power hypothesis (Pagano, 1993; Guzman, 2000).
From our findings it is seen that bank competition promotes growth and policy initiatives that would enhance the level of bank competition in the region should be embraced.
The idea of regional financial integration is therefore encouraged and supported as it is expected to indirectly enhance economic growth by increasing the level of bank competition in the region.

22. Thank you