Bank Efficiency and Economic Growth in the OECD Countries

Süleyman Kale () and Mehmet Hasan Eken ()
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Süleyman Kale: Kırklareli University, Faculty of Applied Sciences, Dept. of Banking and Finance. Lüleburgaz, Kırklareli, Türkiye.
Mehmet Hasan Eken: Kırklareli University, Faculty of Applied Sciences, Dept. of Banking and Finance. Lüleburgaz, Kırklareli, Türkiye.

Journal for Economic Forecasting, 2022, issue 3, 46-66

Abstract: This study analyzes whether efficiency changes in the banking industry affect economic growth, or vice versa, in the OECD countries for the period 2011-2019. In the first stage, bank efficiency figures are measured over time by using the Malmquist Productivity Index. The results indicate that efficiency decreased until 2015 and thereafter recovered. Efficiency decreases mostly resulted from frontier shift, which represents a disadvantageous macroeconomic environment. The Catch-up component of the index was sharply upward after 2017, showing the adaptation of banks to the new-normal economic conditions. In the second stage, a bidirectional association between bank efficiency and economic growth is investigated using dynamic panel data analysis. The findings suggest a limited positive relationship between bank efficiency and economic growth. On the other hand, efficiency changes in the banking industry do not seem to be associated with GDP changes. The analysis is important for correctly positioning the banking sector within an economy and for a correct evaluation of the role of banking from microeconomic fields to macroeconomic channels.

Keywords: Data Envelopment Analysis; Malmquist Productivity Index; two-step system GMM; bank efficiency. (search for similar items in EconPapers)
JEL-codes: C14 C61 G21 (search for similar items in EconPapers)
Date: 2022
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