Does cross-border banking enhance competition and cost efficiency? Evidence from Africa

Over the last two decades, the unprecedented expansion of cross-border banking on the African banking market has raised concern about their effects on host countries’ markets. This paper investigates to what extent this expansion has affected competition and cost efficiency in the African banking market using a sample of 429 active commercial banks from 2000 to 2015. Results show that CBB activities enhance competition, mainly driven by African CBB. At the regional scale, these effects are more substantial in Sub-Saharan Africa (SSA) because African CBBs have more expanded their activities in SSA. We also document that more efficient banks alleviate the competition induced by the expansion of African CBBs. The latter exhibit lower efficiency and therefore do not encourage bank efficiency. This study further shows that macroeconomic conditions and institutional variables are essential drivers of bank competition and cost efficiency in Africa. These results are robust to alternative estimation techniques (system-GMM, Quantile regression-Adaptative MCMC, Matching) and proxies of competition and cost efficiency.