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Efficiency, innovation and competition: evidence from Vietnam, China and India

Author

Listed:
  • Thanh Pham Thien Nguyen

    (University of Economics Ho Chi Minh City
    Griffith University)

  • Son Hong Nghiem

    (Queensland University of Technology)

  • Eduardo Roca

    (Griffith University)

  • Parmendra Sharma

    (Griffith University)

Abstract

Given a number of common features in both the economy and banking markets across Vietnam, China and India, this study investigates the comparative levels of efficiency, innovation and competition and then examines the effect of competition on innovation of banks in the three countries over the period 1995–2011. Applying for the first time a recently developed stochastic meta-frontier framework to the banking sector, this study finds that Indian banks are the most cost-efficient, followed by Chinese banks and Vietnamese banks. Indian banks are also more innovative in reducing the operating costs compared to Chinese and Vietnamese banks. Using the Lerner index, the banking markets of India and Vietnam are found to be more competitive than that of China. The relationship between competition and cost-reducing innovation follows an inverse U-shape curve, which is consistent with the literature. This study also finds that the optimal Lerner index to achieve the greatest innovation in reducing operating costs is 55 %. Based on the results of the Lerner index, this study recommends that to improve cost-reducing innovation, policy makers should promote bank competition in all the three countries, but to a greater extent in China than in Vietnam and India.

Suggested Citation

  • Thanh Pham Thien Nguyen & Son Hong Nghiem & Eduardo Roca & Parmendra Sharma, 2016. "Efficiency, innovation and competition: evidence from Vietnam, China and India," Empirical Economics, Springer, vol. 51(3), pages 1235-1259, November.
    • Handle: RePEc:spr:empeco:v:51:y:2016:i:3:d:10.1007_s00181-015-1045-5
    DOI: 10.1007/s00181-015-1045-5
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    References listed on IDEAS

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    2. Giovana Aguilar & Jhonatan Portilla, 2022. "Poder de mercado, bienestar social y eficiencia en la industria microfinanciera regulada en el Perú ," Documentos de Trabajo / Working Papers 2022-512, Departamento de Economía - Pontificia Universidad Católica del Perú.
    3. Fontin, Jean-Raymond & Lin, Shi-Woei, 2019. "Comparison of banking innovation in low-income countries: A meta-frontier approach," Journal of Business Research, Elsevier, vol. 97(C), pages 198-207.
    4. Khoa Dang Duong & Hoi Vu Le & Duy Nhat Vu & Ai Ngoc Nhan Le, 2023. "Do Bank Funding Diversity and Bank Lending Affect Net Interest Margins? Evidence From Asia Markets Before and During the Covid-19 Pandemic," SAGE Open, , vol. 13(4), pages 21582440231, December.
    5. Giovanna Aguilar & Jhonatan Portilla, 2020. "Determinants of Market Power in the Peruvian Regulated Microfinance Sector," Journal of Industry, Competition and Trade, Springer, vol. 20(4), pages 657-688, December.
    6. Giovanna Aguilar Andía & Jhonatan Portilla Goicochea, 2020. "Competencia, alcance social y sostenibilidad financiera en las microfinanzas reguladas peruanas," Documentos de Trabajo / Working Papers 2020-493, Departamento de Economía - Pontificia Universidad Católica del Perú.
    7. Giovanna Aguilar & Jhonatan Portilla, 2023. "The nonlinearity of the relationship between competition and the dual performance of regulated microfinance institutions in Peru," SN Business & Economics, Springer, vol. 3(7), pages 1-27, July.
    8. María Molinos-Senante & Alexandros Maziotis, 2019. "Cost Efficiency of English and Welsh Water Companies: a Meta-Stochastic Frontier Analysis," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 33(9), pages 3041-3055, July.
    9. Mohamed Chaffai & M. Kabir Hassan, 2019. "Technology Gap and Managerial Efficiency: A Comparison between Islamic and Conventional Banks in MENA," Journal of Productivity Analysis, Springer, vol. 51(1), pages 39-53, February.
    10. Luong Vinh Quoc Duy & Damien Cassells, 2022. "Agglomeration and innovation effort: A longitudinal study on small and medium manufacturing enterprises in Vietnam," Review of Development Economics, Wiley Blackwell, vol. 26(3), pages 1252-1268, August.
    11. Phuc Trong Ho & Pham Xuan Hung & Nguyen Duc Tien, 2023. "Effects of varieties and seasons on cost efficiency in rice farming: A stochastic metafrontier approach," Asian Journal of Agriculture and Rural Development, Asian Economic and Social Society, vol. 13(2), pages 120-129.
    12. Man Ha & Christopher Gan & Cuong Nguyen & Patricia Anthony, 2021. "Self-Organising (Kohonen) Maps for the Vietnam Banking Industry," JRFM, MDPI, vol. 14(10), pages 1-18, October.

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    More about this item

    Keywords

    Vietnam; China; India; Competition; Efficiency; Innovation; Meta-frontier; SFA;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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