Total Factor Productivity and Convergence: Evidence From Old and New Eu Member Countries’ Banking Sectors

Abstract

This paper examines whether there has been convergence of total factor productivity levels across twenty-two EU member and three candidate countries following the process of legislative harmonization. The results indicate evidence of β-convergence and σ-convergence in productivity across sampled countries. The results further indicate that all sampled banking sectors seem to have experienced a significant productivity growth over the sample period. The productivity growth levels range from 3.1% to 15.6% and 6.8% to 19.5% in the old member and new member states, respectively. The geometric means considering all banking firms in the new member and candidate countries together reveal that banking sectors in these countries were more productive than those of in the old EU member countries. Overall, the evidence indicates that promoting merger and acquisition activities in the banking system (and hence supporting market driven consolidation of smaller banks) and enhancing the presence of foreign banks could increase competition and productivity in these banking systems.Reference to this paper should be made as follows: Kasman, A.; Kasman, S.; Ayhan, D.; Torun, E. 2013. Total factor productivity and convergence: evidence from old and new EU member countries' banking sectors, Journal of Business Economics and Management 14(Supplement 1): S13-S35.

Bank efficiency, productivity, and convergence in EU countries: a weighted Russell directional distance model

“…From Figure 1 and Table 3, it is evident that country group average score for TE and CE in new EU countries are still below bank efficiency scores in old EU countries under both CRS and VRS assumption. These results support previous empirical findings e.g., Kasman et al (2013), Casu and Girardone (2010). These findings are interesting since the majority of banks in new EU countries are mostly owned by foreign banks.…”

“…The authors find no evidence of group convergence following the onslaught of the global financial crisis. Kasman et al (2013), on their part, analyse the convergence of total factor productivity within EU22 countries using the concepts of β-convergence and σ-convergence over the period 1995 to 2006 and find evidence of convergence. To sum up, an overview of the studies on bank efficiency and convergence reveals a significant gap in the literature.…”

Technical efficiency and total factor productivity in the Kazakh banking industry

“…mainly by a positive technical change (5.4%). These results are consistent with the findings of Mukherjee et al (2001), Casu et al (2004), and Kasman et al (2013) that examined the productivity of banks operating in the US and EU member countries, where technical change was found to drive the productivity growth. In addition, the results indicate that Kazakh banks do not exploit the catching-up effect and the size of technical change is generally greater than the size of the technical efficiency change over the sample period.…”

“…where M (•) indicates the Malmquist productivity index and D (•) represents the distance function. A value of M (•) greater than 1 indicates a productivity growth between periods t and t + 1; a value less than 1 indicates a decline in productivity between periods t and t + 1, and a value equal to 1 indicates no change in productivity (Kasman et al 2013).…”

“…(A.2) can be decomposed into pure efficiency change (PE) and scale efficiency (SE) change. Using this decomposition, the Malmquist TFP index can be denoted as follows (Kasman et al 2013…”