Antecedents of Total Factor Productivity Change: Empirical Evidence from the Chinese Banking Sector

Productivity change, Malmquist productivity index (MPI), China, G21, G28,

Is there a Gap in Bank Efficiency between CEE and Western European Countries?

This paper aims at comparing the efficiency of banks from Western European countries and Central and Eastern European (CEE) countries to assess the performance gap between both groups of banks. We measure cost efficiency on a sample of 955 banks from 17 European countries with the stochastic frontier approach. We conclude the following: (a) there is a gap in bank efficiency between CEE and Western European countries, (b) this gap was reduced between 1996 and 2000 for most CEE countries, and (c) this gap is partly explained by differences in environment, but not by differences in risk preferences. Comparative Economic Studies (2007) 49, 101–127. doi:10.1057/palgrave.ces.8100183

Estimation of banking technology under credit uncertainty

Credit risk is crucial to understanding banks’ production technology and should be explicitly accounted for when modeling the latter. The banking literature has largely accounted for risk usingex-post realizations of banks’ uncertain outputs and the variables intended to capture risk. This is equivalent to estimating an ex-post realization of bank’s production technology which, however, may not reflect optimality conditions that banks seek to satisfy under uncertainty. The ex-post estimates of technology are likely to be biased and inconsistent, and one thus may call into question the reliability of the results regarding banks’ technological characteristics broadly reported in the literature. However, the extent to which these concerns are relevant for policy analysis is an empirical question. In this paper, we offer an alternative methodology to estimate banks’ production technology based on the ex-ante cost function. We model credit uncertainty explicitly by recognizing that bank managers minimize costs subject to given expected outputs and credit risk. We estimate unobservable expected outputs and associated credit risk levels from banks’ supply functions via nonparametric kernel methods. We apply this framework to estimate production technology of U.S. commercial banks during the period from 2001 to 2010 and contrast the new estimates with those based on the ex-post models widely employed in the literature