Integration, Productivity and Technological Spillovers: Evidence for Eurozone Banking Industries

In the context of the debate on increased integration of Eurozone banking markets, this paper evaluates the impact of the Single Market on bank productivity and assesses the cross-border benefits of integration in terms of technological spillovers. We utilise a parametric metafrontier Divisia index to estimate productivity change and identify technological gaps. We then assess the extent to which productivity converges within and across banking industries as a result of technological spillovers. Our results suggest that bank productivity growth has occurred for most Eurozone countries up to the onset of the financial crisis, but has since reversed. Technological spillovers do exist, and have led to progression toward the best technology. However, convergence is not complete and significant long run differences in productivity persist. Improvements in technology are increasingly driven by a smaller number of banks and concentrated in fewer banking industries.