The Degree of Competition in Ethiopian Banking Industry

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Addis Ababa University


This study tries to investigate competitive condition of Ethiopian banking industry based on 16 private banks using quarterly panel data over the period of 2013-2017. The study applies both structural and non-structural methods. The result of structural measures; Concentration Ratio and Herfindahl-Hirschman index confirm banking sector in Ethiopia moderately concentrated and decreasing from time to time. A modern empirical analysis based on the non-structural method developed by Panzar and Rosse (1987) regressions with fixed effects were used to calculate the H statistic. The H-statistic is estimated using both interest revenue and total revenue as dependant variables. As explanatory variables: three factor input prices, bank specific and macroeconomic control variables used. The result of non-structural model; Panzar-Rosse confirm banking industry operate under perfect competitive and the equilibrium test results confirm that the market is in long-run equilibrium but interest revenue based market is lower than non-interest based market, that is price competition is relatively low in Ethiopian banking sector. The bank revenue highly explained by price of fund than other input prices, that implying interest expense is the main element of variable cost among banks. The result of non-structural model also confirms the structural argument that concentration is not a proxy of market structural.


A Thesis Presented in partial Fulfillment of the Requirements for the Degree of Master of Science in Accounting and Finance


Banking, Competition, H-statistic, Panzer-Rosse