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The Determinants of Bank Efficiency and Productivity Growth in the Central and Eastern European Banking Systems

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  • Alin Marius Andries

Abstract

In this paper we examine the determinants of the efficiency and productivity of the banking systems of seven central and east European countries during a five-year period, from 2004 to 2008. Two approaches are used to examine the efficiency of the banking industry in central and east European countries: stochastic frontier analysis and data envelopment analysis. The empirical results show that the average efficiency of banks in central and east European countries grew in the period analyzed. The improvement may be due to increased competition upon EU accession and the entry of foreign banks, as well as to extensive legislative changes that led banks to become more efficient. Based on the results, we see that the highest level of technical efficiency is recorded for the banking systems of Romania and the Czech Republic, and the lowest is recorded for Slovenia. Looking at the average efficiency scores for each country, we observe significant variation across the banking systems of the central and east European countries. Technical efficiency value estimates with the stochastic frontier analysis method range from 0.6275 in Slovakia to 0.8644 in Romania. To assess the level of productivity growth of the banking industry, a Malmquist productivity index is calculated using linear programming. In the analyzed period, on average, the productivity of banks had increased in 2008 by approximately 24.27 percent from 2004, an increase due especially to technological modification.

Suggested Citation

  • Alin Marius Andries, 2011. "The Determinants of Bank Efficiency and Productivity Growth in the Central and Eastern European Banking Systems," Eastern European Economics, Taylor & Francis Journals, vol. 49(6), pages 38-59, November.
  • Handle: RePEc:mes:eaeuec:v:49:y:2011:i:6:p:38-59
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    1. Dustmann, Christian & Kirchkamp, Oliver, 2002. "The optimal migration duration and activity choice after re-migration," Journal of Development Economics, Elsevier, pages 351-372.
    2. Dustmann, Christian & Kirchkamp, Oliver, 2002. "The optimal migration duration and activity choice after re-migration," Journal of Development Economics, Elsevier, pages 351-372.
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    Cited by:

    1. Mihăiță-Cosmin M. POPOVICI, 2013. "A Survey On Bank Efficiency Research With Data Envelopment Analysis And Stochastic Frontier Analysis," SEA - Practical Application of Science, Fundația Română pentru Inteligența Afacerii, Editorial Department, issue 1, pages 134-142, June.
    2. Francesco Aiello & Graziella Bonanno, 2016. "Looking at the determinants of efficiency in banking: evidence from Italian mutual-cooperatives," International Review of Applied Economics, Taylor & Francis Journals, vol. 30(4), pages 507-526, July.
    3. Aiello, Francesco & Bonanno, Graziella, 2015. "Multilevel empirics for small banks in local markets," MPRA Paper 64399, University Library of Munich, Germany.
    4. Mihăiță-Cosmin M. Popovici, 2013. "Latest Challenges In Efficiency Convergence In Balkan And Baltic Countries," Network Intelligence Studies, Fundația Română pentru Inteligența Afacerii, Editorial Department, issue 2, pages 110-118, October.
    5. Twaha, Koire & Rashid, Abdul, 2012. "Exploring the determinants of the productivity of microfinance institutions in India," MPRA Paper 45715, University Library of Munich, Germany.
    6. Sona Stikarova, 2014. "Economic growth, inequality and efficiency," Department of Economic Policy Working Paper Series 006, Department of Economic Policy, Faculty of National Economy, University of Economics in Bratislava.
    7. Cosmin Eugen ENACHE, 2012. "The efficiency of expenditure-related redistributive policies in the European countries," Timisoara Journal of Economics, West University of Timisoara, Romania, Faculty of Economics and Business Administration, vol. 5(18), pages 380-394.
    8. repec:eee:spacre:v:17:y:2014:i:1:p:78-87 is not listed on IDEAS
    9. repec:cmj:journl:y:2013:i:27:popovicimc is not listed on IDEAS
    10. repec:eee:ecosys:v:41:y:2017:i:1:p:122-138 is not listed on IDEAS
    11. Mogoseanu Daniela Bianca, 2013. "Comparative Study On The Level Of Efficiency And Its Determinants For The Manufacturing Industry In Central And Eastern Europe," Annals of University of Craiova - Economic Sciences Series, University of Craiova, Faculty of Economics and Business Administration, pages 186-196.
    12. Mihaita Cosmin POPOVICI, 2014. "Banking integration and efficiency convergence in Baltic countries in post-crisis period," Timisoara Journal of Economics and Business, West University of Timisoara, Romania, Faculty of Economics and Business Administration, vol. 7(2), pages 134-146, December.

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