This study examines the causal link between bank efficiency and bank competition. The study estimates bank competition with the Lerner index and bank cost efficiency with data envelopment analysis using annual data over the period 2001–2010. Using system generalized method of moments (system GMM) estimator, the results suggest that bank cost efficiency positively Granger-causes market power and hence causality negatively runs from bank cost efficiency to bank competition indicating that bank cost efficiency precedes bank competition. However, the reverse causality running from bank competition to bank cost efficiency is not supported.
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Adjei-Frimpong et al. (2013) studied this question.
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