IDEAS home Printed from https://ideas.repec.org/a/taf/applec/v49y2017i33p3313-3327.html
   My bibliography  Save this article

Economic liberalization and sources of productivity growth in Indonesian Banks: is it efficiency improvement or technological progress?

Author

Listed:
  • Felisitas Defung
  • Ruhul Salim
  • Harry Bloch

Abstract

This article investigates the sources of productivity growth in the Indonesian banking sector during 23 years period from 1993 to 2015. The industry has gone through several episodes of policy reforms, starting from the radical deregulation in the late 1980s, the restructuring period following the 1997 Asian financial crisis, the consolidation period in the mid-2000s to the economic expansion in the 2010s. Using panel data of 98 commercial banks, we explore productivity growth using Malmquist indices complemented with bootstrapping technique to provide measures of the statistical precision of the results. The Malmquist index measures total factor productivity, efficiency change and technological change. Results show that productivity improves moderately and appears to be less volatile towards the end of the period. Furthermore, efficiency change tends to be the main source of productivity improvement rather than technological change.

Suggested Citation

  • Felisitas Defung & Ruhul Salim & Harry Bloch, 2017. "Economic liberalization and sources of productivity growth in Indonesian Banks: is it efficiency improvement or technological progress?," Applied Economics, Taylor & Francis Journals, vol. 49(33), pages 3313-3327, July.
    • Handle: RePEc:taf:applec:v:49:y:2017:i:33:p:3313-3327
    DOI: 10.1080/00036846.2016.1259748
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00036846.2016.1259748
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00036846.2016.1259748?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. João Rebelo & Victor Mendes, 2000. "Malmquist indices of productivity change in Portuguese banking: The deregulation period," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 6(3), pages 531-543, August.
    2. Isik, Ihsan & Kabir Hassan, M., 2003. "Financial deregulation and total factor productivity change: An empirical study of Turkish commercial banks," Journal of Banking & Finance, Elsevier, vol. 27(8), pages 1455-1485, August.
    3. Berger, Allen N. & Humphrey, David B., 1997. "Efficiency of financial institutions: International survey and directions for future research," European Journal of Operational Research, Elsevier, vol. 98(2), pages 175-212, April.
    4. Manthos D. Delis & Philip Molyneux & Fotios Pasiouras, 2011. "Regulations and Productivity Growth in Banking: Evidence from Transition Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(4), pages 735-764, June.
    5. Simar, Leopold & Wilson, Paul W., 1999. "Estimating and bootstrapping Malmquist indices," European Journal of Operational Research, Elsevier, vol. 115(3), pages 459-471, June.
    6. Thoraneenitiyan, Nakhun & Avkiran, Necmi K., 2009. "Measuring the impact of restructuring and country-specific factors on the efficiency of post-crisis East Asian banking systems: Integrating DEA with SFA," Socio-Economic Planning Sciences, Elsevier, vol. 43(4), pages 240-252, December.
    7. Ali Ataullah & Hang Le, 2006. "Economic reforms and bank efficiency in developing countries: the case of the Indian banking industry," Applied Financial Economics, Taylor & Francis Journals, vol. 16(9), pages 653-663.
    8. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "The Economic Theory of Index Numbers and the Measurement of Input, Output, and Productivity," Econometrica, Econometric Society, vol. 50(6), pages 1393-1414, November.
    9. Felisitas Defung & Ruhul Salim & Harry Bloch, 2016. "Has regulatory reform had any impact on bank efficiency in Indonesia? A two-stage analysis," Applied Economics, Taylor & Francis Journals, vol. 48(52), pages 5060-5074, November.
    10. Mohamed Ariff & Luc Can, 2009. "IMF Bank-Restructuring Efficiency Outcomes: Evidence from East Asia," Journal of Financial Services Research, Springer;Western Finance Association, vol. 35(2), pages 167-187, April.
    11. Muliaman Hadad & Maximilian Hall & Karligash Kenjegalieva & Wimboh Santoso & Richard Simper, 2011. "Productivity changes and risk management in Indonesian banking: a Malmquist analysis," Applied Financial Economics, Taylor & Francis Journals, vol. 21(12), pages 847-861.
    12. Sufian, Fadzlan, 2011. "Banks total factor productivity change in a developing economy: Does ownership and origins matter?," Journal of Asian Economics, Elsevier, vol. 22(1), pages 84-98, February.
    13. Berg, Sigbjorn Atle & Forsund, Finn R & Jansen, Eilev S, 1992. " Malmquist Indices of Productivity Growth during the Deregulation of Norwegian Banking, 1980-89," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(0), pages 211-228, Supplemen.
    14. Williams, Jonathan & Nguyen, Nghia, 2005. "Financial liberalisation, crisis, and restructuring: A comparative study of bank performance and bank governance in South East Asia," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 2119-2154, August.
    15. Wheelock, David C & Wilson, Paul W, 1999. "Technical Progress, Inefficiency, and Productivity Change in U.S. Banking, 1984-1993," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(2), pages 212-234, May.
    16. Fare, Rolf & Knox Lovell, C. A., 1978. "Measuring the technical efficiency of production," Journal of Economic Theory, Elsevier, vol. 19(1), pages 150-162, October.
    17. Gilbert, R. Alton & Wilson, Paul W., 1998. "Effects of Deregulation on the Productivity of Korean Banks," Journal of Economics and Business, Elsevier, vol. 50(2), pages 133-155, March.
    18. Tortosa-Ausina, Emili & Grifell-Tatje, Emili & Armero, Carmen & Conesa, David, 2008. "Sensitivity analysis of efficiency and Malmquist productivity indices: An application to Spanish savings banks," European Journal of Operational Research, Elsevier, vol. 184(3), pages 1062-1084, February.
    19. Fethi, Meryem Duygun & Pasiouras, Fotios, 2010. "Assessing bank efficiency and performance with operational research and artificial intelligence techniques: A survey," European Journal of Operational Research, Elsevier, vol. 204(2), pages 189-198, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Doojav, Gan-Ochir & Kalirajan, Kaliappa, 2020. "Sources of energy productivity change in Australian sub-industries," Economic Analysis and Policy, Elsevier, vol. 65(C), pages 1-10.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mai, Nhat Chi, 2015. "Efficiency of the banking system in Vietnam under financial liberalization," OSF Preprints qsf6d, Center for Open Science.
    2. Casu, Barbara & Ferrari, Alessandra & Girardone, Claudia & Wilson, John O.S., 2016. "Integration, productivity and technological spillovers: Evidence for eurozone banking industries," European Journal of Operational Research, Elsevier, vol. 255(3), pages 971-983.
    3. Meryem Duygun Fethi & Mohamed Shaban & Thomas Weyman-Jones, 2009. "Liberalisation, privatisation and the productivity of Egyptian banks: a non-parametric approach," The Service Industries Journal, Taylor & Francis Journals, vol. 31(7), pages 1143-1163, September.
    4. Fernández, Ana Isabel & Gascón, Fernando & González , Eduardo, 2001. "Economic Efficiency and Value Maximization in Banking Firms," Efficiency Series Papers 2001/11, University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG).
    5. Tortosa-Ausina, Emili & Grifell-Tatje, Emili & Armero, Carmen & Conesa, David, 2008. "Sensitivity analysis of efficiency and Malmquist productivity indices: An application to Spanish savings banks," European Journal of Operational Research, Elsevier, vol. 184(3), pages 1062-1084, February.
    6. Kao, Chiang & Liu, Shiang-Tai, 2014. "Measuring performance improvement of Taiwanese commercial banks under uncertainty," European Journal of Operational Research, Elsevier, vol. 235(3), pages 755-764.
    7. M. Kabir Hassan & Benito Sanchez, 2007. "Efficiency Determinants and Dynamic Efficiency Changes in Latin American Banking Industries," NFI Working Papers 2007-WP-32, Indiana State University, Scott College of Business, Networks Financial Institute.
    8. Falavigna, Greta & Ippoliti, Roberto & Ramello, Giovanni B., 2018. "DEA-based Malmquist productivity indexes for understanding courts reform," Socio-Economic Planning Sciences, Elsevier, vol. 62(C), pages 31-43.
    9. Epure, Mircea & Kerstens, Kristiaan & Prior, Diego, 2011. "Technology-based total factor productivity and benchmarking: New proposals and an application," Omega, Elsevier, vol. 39(6), pages 608-619, December.
    10. Fethi, Meryem Duygun & Pasiouras, Fotios, 2010. "Assessing bank efficiency and performance with operational research and artificial intelligence techniques: A survey," European Journal of Operational Research, Elsevier, vol. 204(2), pages 189-198, July.
    11. Tanna, Sailesh & Luo, Yun & De Vita, Glauco, 2017. "What is the net effect of financial liberalization on bank productivity? A decomposition analysis of bank total factor productivity growth," Journal of Financial Stability, Elsevier, vol. 30(C), pages 67-78.
    12. Panagiotis Tziogkidis & Kent Matthews & Dionisis Philippas, 2018. "The effects of sector reforms on the productivity of Greek banks: a step-by-step analysis of the pre-Euro era," Annals of Operations Research, Springer, vol. 266(1), pages 531-549, July.
    13. Arjomandi, Amir & Valadkhani, Abbas & O’Brien, Martin, 2014. "Analysing banks’ intermediation and operational performance using the Hicks–Moorsteen TFP index: The case of Iran," Research in International Business and Finance, Elsevier, vol. 30(C), pages 111-125.
    14. Riyanka Baral & Debasis Patnaik, 2023. "Bank efficiency and governance: Evidence from Indian banking," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 27(3), pages 957-985, September.
    15. Arjomandi, Amir & Valadkhani, Abbas & Harvie, Charles, 2011. "Analysing Productivity Changes Using the Bootstrapped Malmquist Approach: The Case of the Iranian Banking Industry," MPRA Paper 50397, University Library of Munich, Germany.
    16. Ray, Subhash C. & Das, Abhiman, 2010. "Distribution of cost and profit efficiency: Evidence from Indian banking," European Journal of Operational Research, Elsevier, vol. 201(1), pages 297-307, February.
    17. Chih-Ching Yang, 2014. "An enhanced DEA model for decomposition of technical efficiency in banking," Annals of Operations Research, Springer, vol. 214(1), pages 167-185, March.
    18. Kent Matthews & Nina Zhang, 2009. "Bank Productivity in China 1997-2007: An Exercise in Measurement," Working Papers 252009, Hong Kong Institute for Monetary Research.
    19. Casu, Barbara & Girardone, Claudia & Molyneux, Philip, 2004. "Productivity change in European banking: A comparison of parametric and non-parametric approaches," Journal of Banking & Finance, Elsevier, vol. 28(10), pages 2521-2540, October.
    20. Alin Marius Andries & Bogdan Capraru, 2013. "Impact of Financial Liberalization on Banking Sectors Performance from Central and Eastern European Countries," PLOS ONE, Public Library of Science, vol. 8(3), pages 1-9, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:49:y:2017:i:33:p:3313-3327. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.