The Degree of Competition in the UAE Banking Industry

Abstract

This paper has made an attempt to assess the degree of competition (or market structure) in the UAE banking sector using the H-statistics established by Panzar-Rosse (1987). Data of six years (2009-2015) have been extracted from various balance sheet and income statements of the banks. Pooled OSL estimator was used to obtain the coefficient. The inputs prices were found to be significant except the input price of labor. Total asset was registered to be positively significant. All other variables were not significant. The results of the study reveal that the UAE banking market structure is characterized by the monopolistic competition. That is, banks earned their revenue as if operating under conditions of monopolistic competition during this period. A robust check was performed to test for validity of PR-model. The results yield E-statistic which is consistent with long-run equilibrium. It is believed that both the small and the larger banks operate relatively equal more in a competitive environment. We recommend that UAE should develop new financial products and services that will provide convenience to customers while improving profitability.