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Output, Productivity and Externalities - the Case of Banking

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  • R J Colwell
  • E P Davis

Abstract

Concepts in banking output, and the empirical literature on bank productivity - which employs output concepts - are critically surveyed. Related issues concerning externalities from banking activity, which entail a deviation of private from social measures of banking output, are outlined. For output, the national accounts, production and intermediation approaches are compared. As regards productivity, both partial and total factor productivity measures, and the DEA and parametric approaches to the latter are assessed. The externalities from banking are shown to include contributions to economic development, external economies of scale between institutions, and contagious effects of failures. Among the most striking results in the prevalence of technical inefficiency in banking. In addition, externality issues are rarely considered in combination nor assessed empirically. But more generally, it is also suggested that measurement techniques have often outpaced the theory of what is to be measured, notably in fields such as joint production, risk and competition. Alternative approaches to address these issues are suggested.

Suggested Citation

  • R J Colwell & E P Davis, 1992. "Output, Productivity and Externalities - the Case of Banking," Bank of England working papers 3, Bank of England.
  • Handle: RePEc:boe:boeewp:3
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    Cited by:

    1. Hassan Hassan & Ammar Jreisat, 2016. "Does Bank Efficiency Matter? A Case of Egypt," International Journal of Economics and Financial Issues, Econjournals, vol. 6(2), pages 473-478.
    2. Stephens, Eric & Thompson, James R., 2014. "CDS as insurance: Leaky lifeboats in stormy seas," Journal of Financial Intermediation, Elsevier, vol. 23(3), pages 279-299.
    3. Aude Hubrecht-Deville & Herve Leleu, 2008. "Impact of trade area environment on bank's comparative advantages," Applied Economics, Taylor & Francis Journals, vol. 40(17), pages 2209-2219.
    4. Leigh Drake, 2001. "Efficiency and productivity change in UK banking," Applied Financial Economics, Taylor & Francis Journals, vol. 11(5), pages 557-571.
    5. e Souza, Geraldo da Silva & Staub, Roberta Blass & Tabak, Benjamin Miranda, 2008. "A Probabilistic Approach for Assessing the Significance of Contextual Variables in Nonparametric Frontier Models: An Application to Brazilian Banks," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 28(1), May.
    6. Robert Webb, 2003. "Levels of efficiency in UK retail banks: a DEA window analysis," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 10(3), pages 305-322.
    7. Gunjan M. Sanjeev, 2006. "Data Envelopment Analysis (Dea) for Measuring Technical Efficiency of Banks," Vision, , vol. 10(1), pages 13-27, January.
    8. Ammar Jreisat & Hassan Hassan, 2016. "Banking efficiency in Egypt: an application of data envelopment," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 11(2), pages 101-119.
    9. Daraio, Cinzia & Kerstens, Kristiaan & Nepomuceno, Thyago & Sickles, Robin C., 2019. "Empirical Surveys of Frontier Applications: A Meta-Review," Working Papers 19-005, Rice University, Department of Economics.
    10. Hassan Ismail Hassan & Ammar Jreisat, 2016. "Cost Efficiency of the Egyptian Banking Sector: A Panel Data Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 861-871.
    11. Staub, Roberta B. & da Silva e Souza, Geraldo & Tabak, Benjamin M., 2010. "Evolution of bank efficiency in Brazil: A DEA approach," European Journal of Operational Research, Elsevier, vol. 202(1), pages 204-213, April.
    12. B. Golany & J. E. Storbeck, 1999. "A Data Envelopment Analysis of the Operational Efficiency of Bank Branches," Interfaces, INFORMS, vol. 29(3), pages 14-26, June.
    13. Davis, E. Philip & De Bandt, Olivier, 1999. "A cross-country comparison of market structures in European banking," Working Paper Series 7, European Central Bank.
    14. Valentin Z. Toci & Iraj Hashi, 2013. "Intermediation Efficiency of Banks in South-East Europe: An Empirical Assessment Using Dea and Malmquist Index," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 2(3), pages 01-20, July.
    15. LaPlante, A.E. & Paradi, J.C., 2015. "Evaluation of bank branch growth potential using data envelopment analysis," Omega, Elsevier, vol. 52(C), pages 33-41.
    16. Mörttinen, Leena, 2002. "Banking sector output and labour productivity in six European countries," Research Discussion Papers 12/2002, Bank of Finland.
    17. Margaret Brown & Edward P.M. Gardener, 2004. "A frontier analysis comparison of banking ‘added value’," The Service Industries Journal, Taylor & Francis Journals, vol. 24(4), pages 41-65, July.
    18. Ritchie, P. C. & Rowcroft, J. E., 1996. "Choice of metric in the measurement of relative productive efficiency," International Journal of Production Economics, Elsevier, vol. 46(1), pages 433-439, December.
    19. Good, D. & Nadiri, M.I. & Sickles, R., 1996. "Index Number and Factor Demand Approaches to the Estimarion of Productivity," Working Papers 96-34, C.V. Starr Center for Applied Economics, New York University.
    20. Paulo Soares De Pinho, 2001. "Using accounting data to measure efficiency in banking: an application to Portugal," Applied Financial Economics, Taylor & Francis Journals, vol. 11(5), pages 527-538.

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