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How Large Are Productivity Differences Between Islamic And Conventional Banks?

Author

Listed:
  • WAHIDA AHMAD

    (Arshad Ayub Graduate Business School, Universti Teknologi MARA, 40450 Shah Alam Selangor Darul Ehsan, Malaysia)

  • DAVID PRENTICE

    (Infrastructure Victoria, Level 33, 140 William Street, Melbourne, VIC 3000, Australia)

Abstract

Despite the enormous growth in Islamic banking, most studies, using DEA/Stochastic Frontier Analysis, find Islamic banks are either equally or less productive than conventional banks. We apply the Olley–Pakes (OP) and Ackerberg–Caves–Frazer (ACF) approaches for estimating the production functions of conventional, Islamic and mixed banks in Bahrain and Malaysia between 1990 and 2011. The ACF results are the most plausible. Though Islamic banks tend to be less efficient than conventional banks the difference is not statistically significant. In Malaysia, mixed banks are significantly more productive than other banks and tend to have faster productivity growth.

Suggested Citation

  • Wahida Ahmad & David Prentice, 2023. "How Large Are Productivity Differences Between Islamic And Conventional Banks?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 68(05), pages 1651-1670, September.
    • Handle: RePEc:wsi:serxxx:v:68:y:2023:i:05:n:s0217590819500656
    DOI: 10.1142/S0217590819500656
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    More about this item

    Keywords

    Productivity; Islamic banking; oligopoly;
    All these keywords.

    JEL classification:

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

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