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What is the net effect of financial liberalization on bank productivity? A decomposition analysis of bank total factor productivity growth

Sailesh Tanna, Yun Luo and Glauco De Vita

Journal of Financial Stability, 2017, vol. 30, issue C, 67-78

Abstract: We employ a unique framework to quantify the net effect of financial liberalization on banks’ total factor productivity (TFP) growth through a decomposition analysis of two effects: a positive direct effect of financial liberalization on bank TFP growth; and a negative indirect effect operating through a higher propensity to systemic banking crisis. The empirical decomposition is based on a sample of 1530 banks operating in 88 countries over the period 1999–2011. We find that the net effect of financial liberalization on bank TFP growth is positive: the direct positive effect outweighs the negative one. An important policy implication flows from these findings.

Keywords: Financial liberalization; Banking crisis; Systemic risk; Bank productivity; Total factor productivity (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 G32 D24 E44 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:finsta:v:30:y:2017:i:c:p:67-78