Banks’ Efficiency and Productivity Analysis Using the Hicks-Moorsteen Approach: A Case Study of Iran

Amir Arjomandi and Abbas Valadkhani

Economics Working Papers from School of Economics, University of Wollongong, NSW, Australia

Abstract: This study is the first to use the Hicks-Moorsteen TFP index developed by O’Donnell (2008,2009, 2010c) to analyse efficiency and productivity changes in the banking system. The advantage of this approach over the popular Malmquist productivity index is that it is free from any assumptions concerning firm optimising behaviour, the structure of markets, or returns to scale. The effects of Iranian government regulations launched in 2005 on the Iranian banking industry are investigated through an analysis of performance over the period 2003-2008 assuming variable returns to scale. The results obtained show that although the Iranian banking industry has been inefficient over the entire period of the study, the industry’s technical efficiency level - which had improved over the period 2003-2006 - deteriorated considerably after the regulatory changes were introduced. The industry experienced its highest negative efficiency growth in 2006 which was 43% and became more mix inefficient after 2005, with a considerably negative productivity change after 2007. Overall, changes of production possibility set and scale efficiency changes exerted dominant effects on productivity changes.

Keywords: Regulation; Productivity; Banking; Data envelopment analysis; Malmquist index; Hicks-Moorsteen index (search for similar items in EconPapers)
JEL-codes: G28 O47 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2010
New Economics Papers: this item is included in nep-cwa, nep-eff and nep-reg
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