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2019 | OriginalPaper | Chapter

16. Does the Increase in Banking Concentration Impact Income Inequality in South Africa?

Authors : Eliphas Ndou, Thabo Mokoena

Published in: Inequality, Output-Inflation Trade-Off and Economic Policy Uncertainty

Publisher: Springer International Publishing

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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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previous chapter Can an Unexpected Loosening in the Labour Market Reforms Reduce the Growth of Income Inequality in South Africa?

next chapter Do Positive Bank Concentration Shocks Impact Economic Growth in South Africa?

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.

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.

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.

Carlin, W., & Mayer, C. (2003). Finance, investment and growth. Journal of Financial Economics, 69(1), 191–226.CrossRef

Cetorelli, N., & Gambera, M. (2001). Banking market structure: Financial dependence and growth international evidence from the industry data. Journal of Finance, 56(2), 617–648. CrossRef

Feldmann, H. (2013). Banking systems concentration and labour market performance in industrial countries. Contemporary Economic Policy, 31(4), 719–732.CrossRef

Guzman, M. G. (2000). Bank structure, capital accumulation and growth: A simple macroeconomic model. Economic Theory, 16(2), 421–455.CrossRef

Smith, R. T. (1998). Banking competition and macroeconomic performance. Journal of Money, Credit and Banking, 30(4), 793–815.CrossRef

Title: Does the Increase in Banking Concentration Impact Income Inequality in South Africa?
Authors: Eliphas Ndou
Thabo Mokoena
Publisher: Springer International Publishing
Book: Inequality, Output-Inflation Trade-Off and Economic Policy Uncertainty
Print ISBN: 978-3-030-19802-2

Electronic ISBN: 978-3-030-19803-9

Copyright Year: 2019
DOI: https://doi.org/10.1007/978-3-030-19803-9_16