Productivity decomposition in European banking with accession economies : an application of parametric and nonparametric Malmquist techniques

This thesis analyzes the performance levels of 22 euro zone banking industries on a panel data of commercial and savings banks. The analysis is achieved by grouping the sample as euro zone developed (EU-12) and accession (EU-10) countries. The main objective is to identify the efficiency and productivity disparities between the two groups of countries during 1997--2001. Furthermore, this thesis investigates the impact of the single currency and the recent EU enlargement on the parametric and nonparametric findings. The empirical analysis is based on the comparison of a time-varying stochastic parametric distance function, with conventional DEA. Distance functions are used to generate a parametric stochastic estimate of generalised Malmquist productivity index as suggested by Orea (2002). Further, both of the generalised Malmquist and DEA-Malmquist productivity indices are decomposed into technical efficiency change, technological change and economies of scale change components. The aim is to investigate how the relevant components affect the productivity scores and how the results vary with different measurement techniques.;The empirical findings suggest that, in general, EU-12 commercial banks are performing better than EU-12 savings banks. There is evidence of an inverse relationship between bank size and the total factor productivity scores of all groups of banks under analysis. In contrast, there is no evidence of a relationship between bank size and technical efficiency estimates. A slight positive impact of the launch of the euro in 1999 is identified, though just a short term effect. Nearly all of the figures experienced a recession over the post-euro period, i.e. 2000--2001. Moreover, the positive effects of the euro are suggested to be more significant in euro zone commercial banks than their savings counterparts. Economies of scale factors are identified as significant on the overall productivity scores. However, technological change is suggested as the main reason of accession countries not catching-up with their developed counterparts.