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Economic reforms and bank efficiency in developing countries: the case of the Indian banking industry

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Author Info
Ali Ataullah
Hang Le
Abstract

Using the Indian banking industry as a case study, this paper proposes and tests hypotheses regarding the possibility of a relationship between three elements of the Economic Reforms (ERs) -- namely, fiscal reforms, financial reforms, and private investment liberalisation -- and bank efficiency in developing countries. Bank efficiency is measured using data envelopment analysis (DEA); the relationship between the measured efficiency and various bank-specific characteristics and environmental factors associated with the ERs is examined using the OLS and the GMM estimations. Our results show an improvement in the efficiency of banks, especially that of foreign banks, after the ERs. We find a positive relationship between the level of competition and bank efficiency. However, a negative relationship between the presence of foreign banks and bank efficiency is found, which we attribute to a short-run increase in costs due to the introduction of new banking technology by foreign banks. Furthermore, we find that fiscal deficits negatively influence bank efficiency.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal Applied Financial Economics.

Volume (Year): 16 (2006)
Issue (Month): 9 (June)
Pages: 653-663
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Handle: RePEc:taf:apfiec:v:16:y:2006:i:9:p:653-663

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  5. Lensink, Robert & Hermes, Niels, 2004. "The short-term effects of foreign bank entry on domestic bank behaviour: Does economic development matter?," Journal of Banking & Finance, Elsevier, vol. 28(3), pages 553-568, March. [Downloadable!] (restricted)
  6. Altunbas, Y. & Gardener, E. P. M. & Molyneux, P. & Moore, B., 2001. "Efficiency in European banking," European Economic Review, Elsevier, vol. 45(10), pages 1931-1955, December. [Downloadable!] (restricted)
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  9. George Clarke & Robert Cull & Maria Soledad Martinez Peria & Susana M. S·nchez, 2003. "Foreign Bank Entry: Experience, Implications for Developing Economies, and Agenda for Further Research," World Bank Research Observer, Oxford University Press, vol. 18(1), pages 25-59.
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  1. Rajagopal, 2006. "Technology and Customer Value Dynamics in Banking Industry: Measuring Symbiotic Influence in Growth and Performance," Marketing Working Papers 2006-07-MKT, Tecnológico de Monterrey, Campus Ciudad de México. [Downloadable!]
  2. Moffat, Boitnmelo & Valadkhani, Abbas, 2008. "Technical efficiency in Botswana’s financial institutions: a DEA approach," Economics Working Papers wp08-14, School of Economics, University of Wollongong, NSW, Australia. [Downloadable!]
  3. Moffat, Boitnmelo & Valadkhani, Abbas & Harvie, Charles, 2008. "Identifying productivity change in Botswana’s financial institutions: an application of Malmquist productivity indices," Economics Working Papers wp08-13, School of Economics, University of Wollongong, NSW, Australia. [Downloadable!]
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