Question No.

1 : The relationship between financial development and market structure

In this case regression analysis has been used in order to determine the relationship between the financial development which is the dependent variable and market structure which is the independent variable and see the relational impact in the developed countries and underdeveloped countries. For financial development we have PRIVATE CREDIT BY DEPOSIT MONEY BANKS AND OTHER FINANCIAL INSTITUTIONS/GDP (pcrdbofgdp) variable and for market structure we have bank concentration as a variable also to further go deep into the analysis we also want to see the relationship with uncorrelated variables which are bank deposits/GDP and remittance inflows.

Developed Countries Relationship between financial development (pcrdbofgdp) and market structure (bank concentration)
For the developed countries the regression analysis reveal that the relationship between financial development) have PRIVATE CREDIT BY DEPOSIT MONEY BANKS AND OTHER FINANCIAL INSTITUTIONS/GDP) and market structure (bank concentration) positive but weak 3 0.3653495. This means that when bank concentration increase by one unit there will be an improvement in the pcrdbofgdp by 0.365 approximately, to explain further as the bank concentration increases which implies that the competition in banking reduces there will be more credit lending by the deposit money banks and other institutions therefore contributing to the financial development of a country.

Relationship between financial development (pcrdbofgdp) and bank deposits & remittances inflows (Other uncorrelated variables)
Looking at the other uncorrelated variables, the relationship between pcrdbofgdp and bank deposit/GDP & remittance inflows is positive and negative respectively. The results reveal that the relationship between pcrdbofgdp and bank deposit/GDP & remittance inflows is 1 0.5244 and 2 -54.71792 respectively. The relationship uncovers that when there is an increase of one unit in bank deposits/GDP then pcrdbofgdp improves by 0.5244, this means that as the bank deposits keep on increasing private lending will take a positive shift subsequently giving boost to the country financial development while on the other end the relationship between pcrdbofgdp and bank remittance inflows uncovers that when bank remittance inflows increase by one unit pcrdbofgdp will be negatively impacted by 54.71792, this means that when remittance inflows increase private lending will reduce, this could be the reason since the amount of remittance inflows is very minimal as people find better investing opportunities and required return on their money outside developed countries which they do not get in their home countries.

Underdeveloped Countries
Relationship between financial development (pcrdbofgdp) and market structure (bank concentration)
For the developed countries the regression analysis reveal that the relationship between financial development) have PRIVATE CREDIT BY DEPOSIT MONEY BANKS AND OTHER FINANCIAL INSTITUTIONS/GDP) and market structure (bank concentration) positive but weak 3 0.344. The same as in the case of developed countries, this means that when bank concentration increases by one unit there will be 0.344 unit of increment in pcrdbofgdp, more precisely as the

competition in the market structure reduces banking becomes more concentrated therefore making private lending by deposit money banks and other institutes jumps up subsequently prospering financial development in a country.

Relationship between financial development (pcrdbofgdp) and bank deposits & remittances inflows (Other uncorrelated variables)
With regards to the uncorrelated variables relationship with pcrdbofgdp our analysis reveals surprising results
showing that there is a strong significant relationship. The relationship of pcrdbofgdp is positive with bank deposits & bank remittances inflows 1 0.7177 and 2 1.3477. This means that when bank deposits/GDP increase by one unit pcrdbofgdp will improve by 0.7177, this means that when bank deposits are increasing then private lending by the money deposit banks and other institutions will change by greater amount pisitively. On the other end the as remittances inflows increase by one unit and pcrdbofgdp will improve by greater amount of 1.3477, this means that when remittance inflows are coming into underdeveloped countries giving rise to private lending subsequently making better potentials for financial development of underdeveloped countries.

Question No. 2: The relationship between market structure and financial stability
In this case also regression analysis is deployed to determine the relationship between the financial stability which is the dependent variable and market structure which is the independent variable and see the relational impact in the developed countries and underdeveloped countries. For financial stability we have bank Z-score variable and for market structure we have bank concentration as a variable also to further analyze the situation we also want to see the relationship with uncorrelated variables which are bank Net Interest Margin and Return on Asset.

Developed Countries Relationship between financial stability (bank Z-score) and market structure (bank concentration)
Our analysis for develop country reveal that there is a negative relationship between the bank Z-score and bank concentration. The relationship showed negative 0.30411, this means that when the bank
concentration increase by one unit subsequently the bank Z-score will reduce by 3 0.30411. To further explain the situation as the competition in the banking market increase the bank Z-score will reveal negative mean return standard deviation of 0.30411 as a result the banks becoming more concentrated may bring greater risk and will give rise to financial instability.

Relationship between financial stability (bank Z-score) and bank Net Interest Margin & ROA (Other uncorrelated variables)
The relationship between bank Z-score and Net Interest Margin is negative while with ROA is positive. The results reveal the following figures, bank Z-score relation with NIM and ROA is 1-1.272541 and 2
3.698548 respectively. This means that when net interest margin increases by one unit bank Z-score will dip by 1.272541, this implies when banks NIM is improving the Z-score is in the negative territory of mean returns standard deviations by 1.272541 units. Beside the relationship between bank Z-score and ROA is drastically significant revealing score of 3.698548, this means that when the bank return of assets increase by one unit its Z-score improves by 3.698548 units. To further explain the Z-score lies in the positive territory by greater degree of mean returns standard deviations proving financial stability.

Underdeveloped Countries
Relationship between financial stability (bank Z-score) and market structure (bank concentration)
The regression analysis for underdeveloped countries reveals slightly positive result but insignificant for the relationship between bank Z-score and concentration. The result unfolded that when the Bank concentration increase by one unit there will be a slight positive change in bank Z-score by 3 0.0606294,
this implies that when banking competition reduces the bank Z-score remains in the positive territory of mean return standard deviation contributing minimal to the financial stability of the country.

Relationship between financial stability (bank Z-score) and bank Net Interest Margin & ROA (Other uncorrelated variables)
The analysis reveal surprising results by showing a significant positive relationship of bank Z-score with Net interest margin and ROA 1 1.1446 and 2 1.7706. This means that when the NIM and ROA increases by one unit
the banks Z-score will improve by 1.1446 and 1.7706 respectively, to further explain when the NIM and ROA of bank improve the banks Z-score is significantly above the mean returns of standard deviation.

Conclusive Comments
The overall analysis reveal that the relationship between financial development (pcrdbofgdp) and market
structure (bank concentration) , bank deposit/GDP & remittances inflows showed somewhat significant results for both developed and underdeveloped countries except for remittance inflows against pcrdbofgdp for developed country. On the second case which is financial stability (bank Z-score) and market structure (bank concentration), NIM & ROA revealed mixed results which made difficulties to offer a clear picture of the relationship.

Appendix Relationship between Financial development and Market Structure

Developed countries
. regress privatecreditbydepositmoneybanks bankdepositsgdp remittanceinflowsgdp bankconcentration Source Model Residual Total privatecre~s bankdeposi~p remittance~p bankconcen~n _cons SS 22987.0973 16248.926 39236.0233 Coef. .5244384 -54.71792 .3653495 92.28795 df 3 12 15 MS 7662.36577 1354.07717 2615.73489 t 3.94 -3.25 0.64 2.31 P>|t| 0.002 0.007 0.534 0.040 Number of obs F( 3, 12) Prob > F R-squared Adj R-squared Root MSE = = = = = = 16 5.66 0.0119 0.5859 0.4823 36.798

Std. Err. .1329634 16.85348 .5701529 39.96355

[95% Conf. Interval] .2347361 -91.4385 -.8769069 5.214861 .8141407 -17.99733 1.607606 179.361

Model 1: Developed Countries Private credit by deposit money banks and other financial institutions / GDP=0.5244384 Bank deposits / GDP-54.71792 Remittance inflows / GDP+0.3653495 Bank concentration+92.28795+ Coefficient of bank deposits 1 means any change in bank deposits by one unit; we expect private credit to change by 0.5244384 Coefficient of bank remittance 2 means any change in remittance by one unit; we expect private credit to change by -54.71792 Coefficient of bank concentration 3 means any change in concentration by one unit; we expect private credit to change by 0.3653495

Under developed countires

. regress privatecreditbydepositmoneybanks bankdepositsgdp remittanceinflowsgdp bankconcentration Source Model Residual Total privatecre~s bankdeposi~p remittance~p bankconcen~n _cons SS 67.3845687 33.1813309 100.5659 Coef. .7177385 1.347787 .3344562 -32.13728 df 3 1 4 MS 22.4615229 33.1813309 25.1414749 t 1.19 0.47 0.64 -0.58 P>|t| 0.444 0.722 0.640 0.665 Number of obs F( 3, 1) Prob > F R-squared Adj R-squared Root MSE = 5 = 0.68 = 0.6889 = 0.6701 = -0.3198 = 5.7603

Std. Err. .6016288 2.891632 .5265262 55.29916

[95% Conf. Interval] -6.92668 -35.39389 -6.355694 -734.7797 8.362157 38.08946 7.024606 670.5052

Model 2:Under -Developed Countries Private credit by deposit money banks and other financial institutions / GDP=0.7177385 Bank deposits / GDP+1.347787 Remittance inflows / GDP+0.3344562 Bank concentration-32.13728+ Coefficient of bank deposits 1 means any change in bank deposits by one unit; we expect private credit to change by 0.7177385

Coefficient of bank remittance 2 means any change in remittance by one unit; we expect private credit to change by 1.347787 Coefficient of bank concentration 3 means any change in concentration by one unit; we expect private credit to change by 0.3344562

Relationship between Financial Stability and Market Structure

Developed Countries
. regress bankzscore netinterestmargin bankroa bankconcentration Source Model Residual Total bankzscore netinteres~n bankroa bankconcen~n _cons SS 1178.60998 1777.33163 2955.9416 Coef. -1.272541 3.698548 -.3041148 39.36363 df 3 16 19 MS 392.869993 111.083227 155.575874 t -0.49 2.00 -2.34 4.54 P>|t| 0.632 0.062 0.033 0.000 Number of obs F( 3, 16) Prob > F R-squared Adj R-squared Root MSE = = = = = = 20 3.54 0.0388 0.3987 0.2860 10.54

Std. Err. 2.604346 1.846758 .130117 8.669358

[95% Conf. Interval] -6.793508 -.2164048 -.5799506 20.98541 4.248426 7.613501 -.028279 57.74184

Model 1: Developed Countries Bank z-score=-1.272541 net interest margin+3.698548 bank roa-0.3041148 bank concentration+39.36363+ Coefficient of net interest margin 1 means any change net interest margin by one unit; we expect bank z-score to change by -1.272541 Coefficient of bank ROA 2 means any change in bank ROA by one unit; we expect bank z-score to change by 3.698548 Coefficient of bank concentration 3 means any change in concentration by one unit; we expect bank z-score to change by -0.3041148

Under- Developed Countries

. regress bankzscore netinterestmargin bankroa bankconcentration Source Model Residual Total bankzscore netinteres~n bankroa bankconcen~n _cons SS 275.641822 703.45098 979.092802 Coef. 1.144642 1.77063 .0606294 2.773442 df 3 12 15 MS 91.8806074 58.620915 65.2728535 t 1.20 0.80 0.74 0.34 P>|t| 0.253 0.437 0.471 0.740 Number of obs F( 3, 12) Prob > F R-squared Adj R-squared Root MSE = = = = = = 16 1.57 0.2485 0.2815 0.1019 7.6564

Std. Err. .9534378 2.204473 .0814656 8.172699

[95% Conf. Interval] -.9327201 -3.032503 -.1168689 -15.03334 3.222005 6.573763 .2381276 20.58022

Model 1: Under-Developed Countries Bank z-score=1.144642 net interest margin+1.77063 bank roa+0.0606294 bank concen tration+2.773442+

Coefficient of net interest margin 1 means any change net interest margin by one unit; we expect bank z-score to change by 1.144642 Coefficient of bank ROA 2 means any change in bank ROA by one unit; we expect bank z-score to change by 1.77063 Coefficient of bank concentration 3 means any change in concentration by one unit; we expect bank z-score to change by 0.0606294