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Empirical Economics

Erschienen in:

23.01.2016

Efficiency, innovation and competition: evidence from Vietnam, China and India

verfasst von: Thanh Pham Thien Nguyen, Son Hong Nghiem, Eduardo Roca, Parmendra Sharma

Erschienen in: Empirical Economics | Ausgabe 3/2016

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Abstract

Given a number of common features in both the economy and banking markets across Vietnam, China and India, this study investigates the comparative levels of efficiency, innovation and competition and then examines the effect of competition on innovation of banks in the three countries over the period 1995–2011. Applying for the first time a recently developed stochastic meta-frontier framework to the banking sector, this study finds that Indian banks are the most cost-efficient, followed by Chinese banks and Vietnamese banks. Indian banks are also more innovative in reducing the operating costs compared to Chinese and Vietnamese banks. Using the Lerner index, the banking markets of India and Vietnam are found to be more competitive than that of China. The relationship between competition and cost-reducing innovation follows an inverse U-shape curve, which is consistent with the literature. This study also finds that the optimal Lerner index to achieve the greatest innovation in reducing operating costs is 55 %. Based on the results of the Lerner index, this study recommends that to improve cost-reducing innovation, policy makers should promote bank competition in all the three countries, but to a greater extent in China than in Vietnam and India.

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Commercial banks in Vietnam, China and India are all categorised based on ownership criteria: state-owned banks (called public banks in India), private banks (called joint-stock banks in Vietnam and China) and foreign banks, with state-owned banks accounting for majority (above 50 %) while foreign banks accounting for a small share (below 9.3 %) of the banking market. Liberalisation efforts have gone in similar directions, such as increasing autonomy of state-owned banks from the government through partial privatisation, opening up to foreign competition and introducing prudential norms which focus on raising capital adequacy ratio.

For more detailed discussions about the estimation of SFA, see for example, Coelli et al. Coelli et al. (2005) An introduction to efficiency and productivity analysis: Springer Science & Business Media.

We thank an anonymous reviewer for suggesting this measure of marginal cost and the one-stage estimation of cost gap ratio determinants.

This information is obtained from the Vietnamese and Indian central bank’s annual reports and the China Banking Regulatory Commission’s annual report over the period 2000–2011

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Titel: Efficiency, innovation and competition: evidence from Vietnam, China and India
verfasst von: Thanh Pham Thien Nguyen
Son Hong Nghiem
Eduardo Roca
Parmendra Sharma
Publikationsdatum: 23.01.2016
Verlag: Springer Berlin Heidelberg
Erschienen in: Empirical Economics / Ausgabe 3/2016
Print ISSN: 0377-7332
Elektronische ISSN: 1435-8921
DOI: https://doi.org/10.1007/s00181-015-1045-5

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