The relationship of concentration in the banking sector with financial fragility and economic growth; Research of MSCI EMI countries in particular

The welfare level and living standards of countries are directly proportional to the state of the country's economy, and a strong economy is the primary premise to provide the desired living standards. Therefore, policy makers have to follow all kinds of variables that affect the economy while determining the laws Concentration in the banking sector, which has a large share in national economies, is among these important variables. Knowing the relationship between concentration and economic growth is a necessity for policy makers and regulatory institutions. Financial Fragility is a concept that is accepted as an indicator of crises as a risk factor. Due to this feature of fragility, it is important for policy makers and supervisory institutions to know its relationship with concentration in the banking sector, in terms of shaping the plans for the future. In this direction, the relationship between the concentration ratio, financial fragility and the Gross Domestic Product (GDP), which is an indicator of economic growth, was analyzed by taking the data of the 21 developing countries included in the Morgan Stanley Capital International Emerging Markets Index between 2004 and 2017 from the World Bank database. The significance level and direction of the relationship were investigated by using static and dynamic panel data methods. As a result, a positive and significant relationship was found between the concentration ratio and financial fragility. It has been determined that there is a negative relationship between the concentration ratio, which shows the ratio of the total assets of the three largest banks to the total assets of the sector, which is our independent variable, and economic growth. However; no significant relationship was found between the concentration ratio, which shows the ratio of the total assets of the five largest banks to the total assets of the sector, which is our other independent variable, and economic growth. Keywords: Concentration in the Banking Sector, Financial Fragility, Economic Growth.