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Branch expansion and banking efficiency in Sri Lanka’s post‐conflict era

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  • Thilakaweera, Bolanda Hewa
  • Harvie, Charles
  • Arjomandi, Amir

Abstract

This study assesses changes in the technical efficiency of commercial banks in Sri Lanka following the end of armed conflict in 2009. The weighted aggregate-efficiency technique, based on a group-wise heterogeneous subsampling bootstrap approach, is employed to compare efficiency levels during the periods 2007–2009 and 2010–2013. This technique allows for heterogeneity in environmental and regulatory conditions between the two periods while assuming homogeneity within each period. Our results reveal that the banking sector experienced a significant efficiency improvement post-conflict even with unprecedented branch expansion. The findings, therefore, controvert the mainstream view that bank efficiency declined with rapid industry expansion. Further, we conclude that geographical expansion of the banking sector is a viable and effective policy tool to achieve broad-based and inclusive growth for emerging economies like Sri Lanka, particularly in a period of post-conflict recovery.

Suggested Citation

  • Thilakaweera, Bolanda Hewa & Harvie, Charles & Arjomandi, Amir, 2016. "Branch expansion and banking efficiency in Sri Lanka’s post‐conflict era," Journal of Asian Economics, Elsevier, vol. 47(C), pages 45-57.
    • Handle: RePEc:eee:asieco:v:47:y:2016:i:c:p:45-57
    DOI: 10.1016/j.asieco.2016.09.001
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    More about this item

    Keywords

    Aggregate-efficiency technique; Bank ownership; Bootstrap; Financial intermediation; Sri Lanka;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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