Bank Concentration and Its Impact on Financial Inclusion, Efficiency, and Stability: Evidence from Developing Countries

Abstract

This study investigates the relations between financial stability, financial efficiency, and financial inclusion, which are all measured as index form, and bank concentration via principal component analysis for developing countries. A panel linear autoregressive distributed lag (L-ARDL) model is employed to explore these relations. The results indicate that bank concentration exerts a positive and significant impact on financial stability, financial efficiency, and financial inclusion. To ensure the robustness of the results, panel non-linear (NL-ARDL) and augmented mean group (AMG) models are also applied, with the resultant estimations confirming the consistency of the main results. According to the findings of the study, large banks play a vital role in the banking sector for developing countries due to their diverse financial products, market power, and cost-effectiveness. 

JEL: G10, G15, G20.