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This study examines the impact of financial liberalization and foreign bank entry on the domestic banking sector from 1996 to 2007, and builds upon and expands the work of Lee (2002). We find that foreign bank entry, financial liberalization, ownership structure and degree of openness of foreign bank entry positively impact domestic banking system operating efficiency, capitalization, risk management, long-term soundness, financial performance as well as economic and financial development. However, foreign bank entry is associated with reduced profit margins and increased operating costs of domestic banks in countries with less developed capital markets. Empirical evidence seems to support the argument that foreign bank presence leads to better allocation of capital and eliminates connected lending practices.

Purpose -The purpose of this paper is to investigate technical and scales efficiencies of MFIs in Middle East and North Africa (MENA) countries in provision of financial services. This study also aims at tracing the source of inefficiencies. Design/methodology/approach -This paper uses the non-parametric data envelopment analysis (DEA) approach to estimate the production technology for the set of MENA MFIs. The paper uses DEA because it allows us to perform analyses with small samples, which is the case for MENA, and also allows us to calculate Malmquist indexes to characterize productivity changes. Moreover, DEA does not require a production function to calculate the efficiency. It attempts to determine the efficiency of the firm against some imposed benchmark through mathematical programming. Findings -The paper finds low technical efficiency for all MFIs under both intermediation and the production approaches of DEA methodology. This means that MFIs are wasting input resources (input oriented inefficient) and are not producing enough outputs (making loan, raising funds, and obtaining more borrowers per staff). The paper also does not find any improvement in those efficiencies during the period 2000-2005.Originality/value -The study contributes to the existing MFIs literature by pursuing an empirical and decomposition analysis of efficiency by employing two approaches of DEA methodology to trace the sources of inefficiencies which the managers, practitioners and policy makers need to focus on. DEA has been used as a tool to select the right mix of inputs and outputs to assist in tracing the sources of inefficiencies

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