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Convergence in Banking Efficiency Across European Countries

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  • Laurent Weill

    () (Laboratoire de Recherche en Gestion et Economie, Institut d'Etudes Politiques, Strasbourg)

Abstract

Since the preparation of the Single Market program in the 80s, financial integration in Europe has been expected to provide gains in growth by favoring competition and efficiency on financial markets. Our paper aims to check whether financial integration has taken place on the banking markets, by investigating the convergence in banking efficiency for European Union countries. We measure cost efficiency of banks from 10 EU countries between 1994 and 2005 with the stochastic frontier approach. Our work then constitutes the first one to apply tests of β and σ convergence specified for panel data on banking efficiency measures. We provide evidence of cross-country differences in cost efficiency and of an improvement in cost efficiency for all EU countries. Tests of convergence support the view of a process in convergence in cost efficiency between EU countries. Robustness checks with alternative specifications confirm these findings. These results support the view that financial integration has taken place on the EU banking markets in the recent years.

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Paper provided by Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg (France) in its series Working Papers of LaRGE Research Center with number 2008-07.

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Date of creation: 2008
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Handle: RePEc:lar:wpaper:2008-07

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Keywords: Banking; convergence; efficiency; European integration; stochastic frontier approach.;

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Citations

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Cited by:
  1. Sunil Kumar & Rachita Gulati, 2009. "Did efficiency of Indian public sector banks converge with banking reforms?," International Review of Economics, Springer, vol. 56(1), pages 47-84, March.
  2. Olson, Dennis & Zoubi, Taisier A., 2011. "Efficiency and bank profitability in MENA countries," Emerging Markets Review, Elsevier, vol. 12(2), pages 94-110, June.
  3. Paul Evans & Iftekhar Hasan & Ana Lozano-Vivas, 2008. "Deregulation and Convergence of Banking: The EU Experience," Finnish Economic Papers, Finnish Economic Association, vol. 21(2), pages 104-117, Autumn.
  4. Daley, Jenifer & Matthews, Kent & Zhang, Tiantian, 2011. "Post-crisis cost efficiency of Jamaican banks," Cardiff Economics Working Papers E2011/27, Cardiff University, Cardiff Business School, Economics Section.
  5. Laurent Weill, 2011. "Bank Competition in the EU: How Has It Evolved?," Working Papers of LaRGE Research Center 2011-04, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg (France).
  6. Simplice A, Asongu, 2012. "Are Proposed African Monetary Unions Optimal Currency Areas? Real and Monetary Policy Convergence Analysis," MPRA Paper 36056, University Library of Munich, Germany.
  7. Cândida Ferreira, 2011. "European integration and banking efficiency: a panel cost frontier approach," Working Papers 2011/04, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon..
  8. Agenor, Pierre-Richard & Aizenman, Joshua, 2008. "Capital Market Imperfections and the Theory of Optimum Currency Areas," Santa Cruz Department of Economics, Working Paper Series qt7668j94x, Department of Economics, UC Santa Cruz.
  9. Fungácová, Zuzana & Pessarossi , Pierre & Weill , Laurent, 2012. "Is bank competition detrimental to efficiency? Evidence from China," BOFIT Discussion Papers 31/2012, Bank of Finland, Institute for Economies in Transition.
  10. Matthews, Kent & Zhang, Nina (Xu), 2010. "Bank productivity in China 1997-2007: Measurement and convergence," China Economic Review, Elsevier, vol. 21(4), pages 617-628, December.
  11. Simplice A, Asongu, 2012. "African Financial Development Dynamics: Big Time Convergence," MPRA Paper 36053, University Library of Munich, Germany.
  12. Jimborean, Ramona & Brack, Estelle, 2010. "The cost-efficiency of French banks," MPRA Paper 23471, University Library of Munich, Germany.
  13. Alin Marius Andrieş & Bogdan Căpraru, 2012. "Competition and efficiency in EU27 banking systems," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 12(1), pages 41-60, July.
  14. Simplice A, Asongu, 2012. "Real and Monetary Policy Convergence: EMU Crisis to the CFA Zone," MPRA Paper 36051, University Library of Munich, Germany.
  15. Jozef Baruník & Branislav Soták, 2010. "Influence of Different Ownership Forms on Efficiency of Czech and Slovak Banks: Stochastic Frontier Approach," Politická ekonomie, University of Economics, Prague, vol. 2010(2), pages 207-224.

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