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The productivity growth of euro area banks

Ivan Huljak, Reiner Martin () and Diego Moccero ()
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Ivan Huljak: Croatian National Bank, Trg hrvatskih velikana 3

Journal of Productivity Analysis, 2022, vol. 58, issue 1, No 2, 15-33

Abstract: Abstract We study the performance of the banking system in the Eurozone over the period 2006–2017 as measured by total factor productivity growth (TFPG) and its components. We find that Total Factor Productivity growth for the median euro area bank decreased from around 2.6% in 2007 to below 1.7% in 2017, driven mainly by a decline in technical efficiency. In addition, we control for unobserved heterogeneity across banks and disentangle persistent and time-varying inefficiency in the banking sector. This modelling choice is important to avoid distorted and biased inefficiency estimates. We find that cost efficiency in the euro area banking sector amounted to around 84% on average over the 2006 to 2017 period. The largest part of bank inefficiency is persistent, suggesting that structural long-term factors (such as location, client structure, macroeconomic environment, regulation, etc.) play a bigger role than time-varying factors.

Keywords: Euro area banking sector; total factor productivity; cost-efficiency frontier; panel data; time-varying inefficiency; persistent inefficiency (search for similar items in EconPapers)
JEL-codes: C23 D24 G21 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11123-022-00637-0

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