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Efficiency in the Pakistani Banking Industry: Empirical Evidence after the Structural Reform in the Late 1990s

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  • Atsushi Iimi

    (International Monetary Fund, Washington, D. C.)

Abstract

This article examines the change in technical (in)efficiency of the Pakistani banking industry after the structural reform started in the late 1990s. With international assistance, the Pakistani government has undertaken the restructuring and preparation for privatisation of national commercial and development banks, of which the main goal is the improvement of the efficiency in financial markets. Despite the small sample size, the estimated stochastic production frontier indicates that employees are statistically productive, but capital in terms of branch network is not productive. This is an example counter to the common view that in a less developed banking industry, employees are too often idle and are not productive at all. It is also shown that the efficiency performance of the structural adjustment programmes is in marked contrast among banks. Some banks are found to have improved their technical efficiency during the reform period, while the efficiency improvement of others was ambiguous.

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Bibliographic Info

Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

Volume (Year): 42 (2003)
Issue (Month): 1 ()
Pages: 41-57

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Handle: RePEc:pid:journl:v:42:y:2003:i:1:p:41-57

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  1. Massimo Filippini, 1999. "Economies Of Scale In The Swiss Nursing Home Industry," SOI - Working Papers 9901, Socioeconomic Institute - University of Zurich.
  2. Allen N. Berger & Timothy H. Hannan, 1994. "The efficiency cost of market power in the banking industry: a test of the "quiet life" and related hypotheses," Finance and Economics Discussion Series 94-36, Board of Governors of the Federal Reserve System (U.S.).
  3. Allen N. Berger & David B. Humphrey, 1992. "Measurement and Efficiency Issues in Commercial Banking," NBER Chapters, in: Output Measurement in the Service Sectors, pages 245-300 National Bureau of Economic Research, Inc.
  4. Allen Berger & John Leusner & John Mingo, 1994. "The Efficiency of Bank Branches," Center for Financial Institutions Working Papers 94-27, Wharton School Center for Financial Institutions, University of Pennsylvania.
  5. Fan, Yanqin & Li, Qi & Weersink, Alfons, 1996. "Semiparametric Estimation of Stochastic Production Frontier Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(4), pages 460-68, October.
  6. Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x, December.
  7. Diewert, W E, 1971. "An Application of the Shephard Duality Theorem: A Generalized Leontief Production Function," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 481-507, May-June.
  8. Allen N. Berger & Anthony Saunders & Joseph M. Scalise & Gregory F. Udell, 1997. "The Effects of Bank Mergers and Acquisitions on Small Business Lending," New York University, Leonard N. Stern School Finance Department Working Paper Seires 97-1, New York University, Leonard N. Stern School of Business-.
  9. Adams, Robert M & Berger, Allen N & Sickles, Robin C, 1999. "Semiparametric Approaches to Stochastic Panel Frontiers with Applications in the Banking Industry," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(3), pages 349-58, July.
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Cited by:
  1. Kalbe Abbas & Manzoor Hussain Malik, 2008. "Impact of Financial Liberalisation and Deregulation on Banking Sector in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 47(3), pages 287-313.
  2. Jaffry, Shabbar & Ghulam, Yaseen & Cox, Joe, 2013. "Trends in efficiency in response to regulatory reforms: The case of Indian and Pakistani commercial banks," European Journal of Operational Research, Elsevier, vol. 226(1), pages 122-131.

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