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<p>This study examines whether digital transformation strengthens or weakens bank market power in the Middle East and North Africa (MENA) region, testing two competing theoretical perspectives: the <i>digital advantage hypothesis</i> and the <i>competitive vulnerability hypothesis</i>. The paper contributes to the literature by providing the first dynamic panel analysis of this relationship in the MENA context, where digital finance is rapidly evolving but empirical evidence remains scarce. We analyze a unique panel dataset of 176 banks across 13 MENA countries from 2011 to 2022. Market power is measured using the Lerner index, while digital transformation is captured through a multidimensional index constructed via textual analysis of annual reports. To address endogeneity and dynamic persistence, we employ the System Generalized Method of Moments. The results show a positive relationship between digital transformation and market power, suggesting that banks can use digital transformation as a strategic tool to consolidate their market position. For regulators, these findings highlight the need to monitor for potential anti-competitive effects and ensure that digital innovation promotes both efficiency and financial inclusion. Policymakers should design targeted frameworks that prevent market concentration from restricting access to financial services for marginalized populations.</p>

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Strategic value or threat? The effect of digital transformation on market power in MENA banking

  • 期刊论文

  • 发表日期：

    2026年1月6日

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  • Eya Bejaoui,
  • Naima Lassoued,
  • Imen Khanchel

摘要

This study examines whether digital transformation strengthens or weakens bank market power in the Middle East and North Africa (MENA) region, testing two competing theoretical perspectives: the digital advantage hypothesis and the competitive vulnerability hypothesis. The paper contributes to the literature by providing the first dynamic panel analysis of this relationship in the MENA context, where digital finance is rapidly evolving but empirical evidence remains scarce. We analyze a unique panel dataset of 176 banks across 13 MENA countries from 2011 to 2022. Market power is measured using the Lerner index, while digital transformation is captured through a multidimensional index constructed via textual analysis of annual reports. To address endogeneity and dynamic persistence, we employ the System Generalized Method of Moments. The results show a positive relationship between digital transformation and market power, suggesting that banks can use digital transformation as a strategic tool to consolidate their market position. For regulators, these findings highlight the need to monitor for potential anti-competitive effects and ensure that digital innovation promotes both efficiency and financial inclusion. Policymakers should design targeted frameworks that prevent market concentration from restricting access to financial services for marginalized populations.