Bank Concentration and Economic Costs of Deposit Mobilization and Credit Extension in Ghana
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2012
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Abstract
Welfare losses due to misallocation of resources in the deposit and loans markets and inefficiency
costs in both markets resulting from the concentration of the Ghanaian banking industry are
estimated, respectively using the Harberger‟s triangle and deviations from cost efficient stochastic
frontier approaches. Corporate governance variables hypothesized in the literature to be correlated
with bank inefficiencies were also investigated. Estimates suggest that net welfare loss over 2001 –
2008 averaged 2.6% of gross domestic product (GDP) per year, while inefficiency costs averaged
only 0.7% of GDP. Bank concentration is positively correlated with efficiency in both deposits and
loans markets. The elasticity of operating costs with respect to deposits exceeds the elasticity with
respect to loans. We recommend that steps be taken to reduce bank concentration as the resultant
narrowing of interest rate spreads will likely yield welfare gains that exceed efficiency gains
realizable from increased concentration.
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“Bank Concentration and Economic Costs of Deposit Mobilization and Credit Extension in Ghana,” Journal of Developing Areas, 46(2), 351-370.