Abstract
Evidence reveals that income inequality rises significantly to a positive bank concentration shock. The counterfactual analysis reveals that the increase in income inequality to positive bank concentration shocks is amplified by the decline in both credit and GDP, as well as rising unemployment. Therefore, bank concentration should be reduced to lower income inequality via the indicated channels.
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- 1.
The index varies between 0 to indicate many banks in the system and 1 to indicate monopoly in the system. Measured this way, the H-index also serves as an indicator that measures the degree of monopoly power in the system or market. A smaller (higher or strong) the H-index indicates that there is greater (low or weak) competition and lower (high) concentration in the banking system. For further details on the methodology to calculate the H-index see https://www.resbank.co.za/Lists/News%20and%20Publications/Attachments/4006/Annual+Report+2001[1].pdf.
- 2.
See various editions of the South African Reserve Bank Banking Supervision Annual Reports for further reading. Degryse et al. (2009) also consider markets with the H-index below 0.10 to be competitive and markets with an H-index above 0.18 to be concentrated. The authors regard a change in the H-index of 0.10 as a benchmark for marking the transition from a competitive to a concentrated market. Markets in which H-index is in excess of 0.18 are regarded as concentrated.
- 3.
However, there is greater incentive for monopolistic bank to establish lending relationship to promote firms’ access to investment and raise economic growth, raising employment opportunities, and thus lowering income inequality.
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Ndou, E., Mokoena, T. (2019). Does the Increase in Banking Concentration Impact Income Inequality in South Africa?. In: Inequality, Output-Inflation Trade-Off and Economic Policy Uncertainty . Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-19803-9_16
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DOI: https://doi.org/10.1007/978-3-030-19803-9_16
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