Does Bank Concentration and Financial Development Contribute to Economic Growth? Evidence from OIC Countries

Abstract

Numerous attempts have been made to study the impact of bank concentration and/or competition on economic growth especially after the global financial crisis. There is scarcity in literature covering this relationship within the Organization of Islamic Cooperation (OIC) member countries. This study investigates whether bank concentration and financial development contribute to economic growth within the OIC countries. It investigates whether the same applies to high-income and low-income countries; corrupted and less-corrupted countries. The study employs the generalized method of moments (GMM) estimators that best fit the sample. Overall, bank concentration seems to have a negative impact and non-linear relationship with economic growth. Financial development has a negative impact on economic growth with minute coefficients’ values that can be ignored economically. Economic conditions within the OIC countries may not be improved by additional financial services, but rather by reducing bank concentration (increasing competition), corruption and improving overall income levels.