Estimating a Theoretical Model of State Banking Competition Using a Dynamic Panel: The Brazilian Case

Resumo

In this paper we set up a model of regional banking competition based on Bresnahan (1982), Lau (1982) and Nakane’s (2002) works. The structural model is estimated using data from eight Brazilian states and a dynamic panel – see Arellano and Bond (1991). The results shows that on average the level of competition in the Brazilian banking system is high, even tough the null of perfect competition can be rejected at the usual significance levels. This finding is similar to that presented by Nakane (2002). We also show that the Brazilian loans market were competitive in the years of 2000 and 2001, while in 1999, 2002 and 2003 the hypothesis of perfect competition and perfect collusion can be rejected. On the whole, this result also prevails at the state level: Rio Grande do Sul, São Paulo, Rio de Janeiro, Pernambuco and Minas Gerais have high degree of competition. In Ceará, the null hypothesis of perfect competition cannot be rejected. Notwithstanding, we should point out that Paraná and Bahia have negative and significant coefficients, what can be due to some temporary disequilibrium in this markets (Shaffer, 1993).