Concentration Measuring Techniques in Banking Sector-Lorenz Curve and Gini Coefficient

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Maja Dimić
Svetislav Paunović


The paper presents the indicators of market concentration in the banking sector with a focus on the Lorenz curve the Gini coefficient. The authors present the results of the empirical research of concentration levels in the banking sector in selected countries in the CEE region (Serbia, Croatia, Montenegro, Bosnia and Herzegovina, Macedonia, Bulgaria, Romania and Albania) in the period 2007-2012. The level of market concentration can be exploited and operationalized by using different concentration indicators. The contribution of this research is reflected in the comparative empirical analysis of the results of our previous research that was focused on quantification of the most frequently used indicators of concentration (Concentration ratio 4 and Herfindal-Hirshman index), and the results obtained using the Lorenz curve and the Gini coefficient.

The paper analyzes the level as well as variability of these indicators and tests the degree of their correlation. Individually observed, concentration indicators have relatively low capacity to present the real nature of competition in the banking sector in the analyzed countries as well as to provide a good estimate of possible future trends. The results of our analysis indicate that, for the purpose of a more precise and better understanding of the relevant issues of market concentration in the financial sector, several indicators of concentration need to be analyzed simultaneously. Additionally, improvement of methodology should provide a more reliable basis for a precise definition of adequate policies and legislation in this area.

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