Competition in the Jordanian’s Banking Sector

Idries M. Al-Jarrah

Abstract


This study evaluates the competitiveness and contestability in the Jordanian’s banking industry for the period 2001-2005. The study methodology involves the estimation of revenue function and consideration of the Panzar and Rosse (1987) “H statistic”. Given various specifications of “H statistic” on a panel of the 16 Jordanian’s banks for the period 2001-2005, the study results revealed that the Jordanian’s banking market cannot be characterized by either perfect competition or monopoly over the study period. That is, the banks under study are found to earn their revenues as if operating under conditions of monopolistic competition in that period. This conclusion holds under a variety of specifications controlling for bank-size, risk and deposit composition characteristics, and a number of estimation techniques. An analysis of changes in competitive structure shows a lower degree of competition in the later years of the sample period. In addition, large banks are found to be operating in a relatively more competitive environment compared to small banks. These findings triggers the recommendation that further structural deregulations and liberalization to the banking system of Jordan are needed to reduce the market concentration and enhance the competitiveness of this market.

Keywords


Banking, Competition, Jordanian's Banking

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