Article

 

Measuring Banking Productivity of the Most Recent European Union Member Countries: A Non-Parametric Approach (p.37-57)

by

Dimitrios Angelidis, University of Macedonia, Dept. of Accounting and Finance (Greece)

Katerina Lyroudi, University of Macedonia, Dept. of Accounting and Finance (Greece)

Keywords : Banking efficiency, Data Envelopment Analysis, Transitional Economies

JEL classification : G21, C49, P29

Abstract

This paper evaluates the effectiveness of financial institutions in terms of productivity change of the ten latest members of the European Union for the period before their entry in the EU, 1996-2002. The non-parametric technique called Data Envelopment Analysis (DEA) is employed to calculate the Malmquist productivity index. Then the Malmquist index is decomposed into technological change and technical efficiency change index to determine the exact source of efficiency. The relationship between the size of financial institutions and productivity is also examined. The results indicated that the total level of productivity had increased for half of the countries during the six-year period. The decomposition of the Malmquist index revealed that the productivity increase was lower for the best practice Decision Making Units (DMUs) than the remaining institutions. Finally, the relationship between the size of banking institutions and productivity growth was not statistically significant, with the exception of Latvia, where this relationship was positive and significant.