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Convergence in Banking Efficiency Across European Countries

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

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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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Publisher Info
Paper provided by Laboratoire de Recherche en Gestion et Economie, Université Louis Pasteur, Strasbourg (France) in its series Working Papers of LaRGE (Laboratoire de Recherche en Gestion et Economie) 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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Related research
Keywords: Banking convergence efficiency European integration stochastic frontier approach.

Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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  1. Barbara Casu & Philip Molyneux, 2003. "A comparative study of efficiency in European banking," Applied Economics, Taylor and Francis Journals, vol. 35(17), pages 1865-1876, November. [Downloadable!] (restricted)
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  2. Maudos, Joaquin & Pastor, Jose M. & Perez, Francisco & Quesada, Javier, 2002. "Cost and profit efficiency in European banks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 12(1), pages 33-58, February. [Downloadable!] (restricted)
    Other versions:
  3. Berger, Allen N. & Leusner, John H. & Mingo, John J., 1997. "The efficiency of bank branches," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 141-162, September. [Downloadable!] (restricted)
    Other versions:
  4. Vander Vennet, Rudi, 2002. "Cost and Profit Efficiency of Financial Conglomerates and Universal Banks in Europe," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 254-82, February.
  5. Altunbas, Yener & Molyneux, Phil, 1996. "Economies of Scale and Scope in European Banking," Applied Financial Economics, Taylor and Francis Journals, vol. 6(4), pages 367-75, August. [Downloadable!] (restricted)
  6. John Goddard & Phil Molyneux & John O. S. Wilson, 2004. "The profitability of european banks: a cross-sectional and dynamic panel analysis," Manchester School, University of Manchester, vol. 72(3), pages 363-381, 06. [Downloadable!] (restricted)
  7. Juan Fernández de Guevara & Joaquín Maudos & Francisco Pérez, 2005. "Market Power in European Banking Sectors," Journal of Financial Services Research, Springer, vol. 27(2), pages 109-137, April. [Downloadable!] (restricted)
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  8. Fernandez de Guevara, Juan & Maudos, Joaquin & Perez, Francisco, 2007. "Integration and competition in the European financial markets," Journal of International Money and Finance, Elsevier, vol. 26(1), pages 26-45, February. [Downloadable!] (restricted)
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  9. Quah, Danny T., 1996. "Empirics for economic growth and convergence," European Economic Review, Elsevier, vol. 40(6), pages 1353-1375, June. [Downloadable!] (restricted)
  10. Maudos, Joaquin & Fernandez de Guevara, Juan, 2004. "Factors explaining the interest margin in the banking sectors of the European Union," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2259-2281, September. [Downloadable!] (restricted)
  11. Bauer, Paul W. & Berger, Allen N. & Ferrier, Gary D. & Humphrey, David B., 1998. "Consistency Conditions for Regulatory Analysis of Financial Institutions: A Comparison of Frontier Efficiency Methods," Journal of Economics and Business, Elsevier, vol. 50(2), pages 85-114, March. [Downloadable!] (restricted)
    Other versions:
  12. Barro, R.J. & Sala-I-Martin, X., 1991. "Convergence Across States and Regions," Papers 629, Yale - Economic Growth Center.
    Other versions:
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