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Journal of Economic Integration 2021 June;36(2) :282-307.
DOI: https://doi.org/10.11130/jei.2021.36.2.282
Financial Integration, Competition and Bank Risk-Taking Behavior: Evidence from Africa’s Sub-Regional Markets

Kannyiri Banyen 

Simon Diedong Dombo University of Business and Integrated Development Studies, Ghana
Corresponding Author: Kannyiri Banyen ,Email: kannyiri@yahoo.com
Copyright ©2021 Journal of Economic Integration
ABSTRACT
Financial integration is generally associated with the development of synergies through cross-border banking and investment activities and increased competitiveness among banks. This paper examines the effects of shifts in financial freedom and competition on bank risk-taking behavior using data from 405 banks in 47 African countries across five regional economic communities from 2007-2014. The core findings suggest that financial integration directly increases bank risk-taking behavior in Africa through rising competition. The results also support an inverted U-shaped relationship between competition and bank risk-taking behavior. However, disparities in the results across sub-regional markets suggest that financial integration policies must be tailored to suit the market characteristics of each regional bloc. Overall, the study identifies deficiencies in competitiveness as a fundamental variable that hinders banks’ ability to benefit from the opportunity of stability offered by financial integration in emerging economies.

JEL Classification
F36: Financial Aspects of Economic Integration
F65: Finance
G21: Banks; Depository Institutions; Micro Finance Institutions; Mortgages
N27: Africa; Oceania
Keywords: Financial Integration | Bank Competition | Risk-Taking Behavior | Africa
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