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Cost Inefficiency in the Pakistan Banking Sector 2002-2009

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  • Kent Matthews

    (Cardiff University, Wales, UK.)

Abstract

This paper uses the Simar-Wilson bootstrap technology to estimate cost inefficiency in the Pakistan banking sector for the period 2002-2009. Several models of outputs including bad output are considered alongside a common set of inputs. Cost inefficiency is decomposed into its Technical and Allocative inefficiency components. Panel regression methods are used to model the drivers of inefficiency. In general the findings suggest that inefficiency is declining over time and that there is strong conditional convergence to peer group clusters based on branch levels, ownership and specialism. It is found that in general banks with more branches have higher cost inefficiency, the one foreign bank operates on lower cost inefficiency and Islamic banks have higher allocative inefficiency which is offset by a lower technical inefficiency.

Suggested Citation

  • Kent Matthews, 2014. "Cost Inefficiency in the Pakistan Banking Sector 2002-2009," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 10, pages 1-20.
    • Handle: RePEc:sbp:journl:63
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    File URL: http://www.sbp.org.pk/research/bulletin/2014/Vol-10-1/CostInefficiencyPakistanBankingSector-2002-2009.pdf
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    More about this item

    Keywords

    Cost inefficiency; Pakistan banking. DEA. Bootstrapping;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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