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A cross-country comparison of productivity growth using the generalised metafrontier Malmquist productivity index: with application to banking industries in Taiwan and China

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Abstract

This paper is an extension of the metafrontier Malmquist productivity index, which takes into account the effect of scale efficiency change in its decomposition for both the non-parametric and parametric frameworks. Meanwhile, the ‘catch-up’ in the index is also disintegrated as two components: pure technological catch-up and frontier catch-up. An empirical application that uses unbalanced panel data of the Taiwanese and Chinese commercial banking industry is also conducted under a parametric framework. The results reveal that the adverse scale efficiency change is the key factor to inducing the inferior productivity growth seen in Chinese banks compared with Taiwanese banks, which spotlights the importance of the scale efficiency change term on productivity measures. It also provides one possible explanation for the recent hot issue about the motives for the two shores of the Taiwan Straits advancing financial openness to each other and mutually signing a banking Memorandum of Understanding.

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Notes

  1. The possible misleading conclusion of an MPI without considering the effect of the SEC is implied in the empirical results of Huang et al. (2009). These authors showed that between 1985 and 2003, the productivity of 10 Asian countries comprised −1.70% TEC, 1.85% TC and −6.72% SEC on average. Thus, if the SEC is ignored, a 0.15% yearly growth of TFP would be concluded; however, if the SEC is taken into account, the MPI would present a −6.57% yearly change.

  2. According to Frisch (1965), scale elasticity that equals unity is the technically optimal productive scale. Banker (1984) also characterised it as the most productive scale size.

  3. Relative to O’Donnell et al. (2008), who adopted the non-parametric data envelopment analysis (DEA) approach, this is the first study measuring the MMPI using the parametric stochastic frontier analysis model. Apart from the framework of the metafrontier, there are also studies measuring TFP growth at a country level; for instance, Wu (2004), Kumbhakar and Wang (2005) and Huang et al. (2009) adopted the SFA model; Färe et al. (1994), Chang and Luh (2000), Cook and Uchida (2002), Krüger (2003), Jeon and Sickles (2004) and Färe et al. (2006) adopted the DEA approach; Young (1992, 1995), Fischer (1993), Collins and Bosworth (1996), Marti (1996) and Hsieh (1999, 2002) adopted the growth accounting model; and Han et al. (2002) adopted the varying coefficient production frontier approach.

  4. Refer to Coelli et al. (2005, p. 43) for the fundamental properties of the output set.

  5. Refer to Coelli et al. (2005, pp. 47–48) for the fundamental properties of the distance function.

  6. Similar processes were adopted in Orea (2002) and Denny et al. (1981).

  7. BankScope is a database that is jointly developed and maintained by the European financial information services corporation—Bureau van Dijk (BvD)—and the authoritative banks rating institution—Fitch Ratings. It contains comprehensive information on banks’ financial statements, ratings and intelligence across the globe.

  8. A similar process is also adopted in Huang et al.’s (2010) study on bank efficiencies and technology gaps in European banking.

  9. Refer to Battese and Coelli (1992) for more detail.

  10. Refer to Battese et al. (2004) for details.

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Acknowledgments

The authors thank the editor, Professor Robin C. Sickles, and the anonymous referees for their valuable comments and suggestions. The helpful recommendations proposed by Professor Tai-Shin Huang are also acknowledged. The responsibility for any mistakes or omissions lies entirely with the authors.

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Authors and Affiliations

  1. Department of Management, Fo Guang University, No. 160, Linwei Rd., Jiaosi, Yilan County, 26247, Taiwan, ROC

    Ku-Hsieh Chen

  2. Department of Finance, National Taipei College of Business, No. 321, Sec. 1, Jinan Rd., Zhongzheng District, Taipei City 100, Taiwan, ROC

    Hao-Yen Yang

Authors
  1. Ku-Hsieh Chen
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  2. Hao-Yen Yang
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Correspondence to Ku-Hsieh Chen.

Appendix

Appendix

See Table 7.

Table 7 Sample list for Taiwanese and Chinese banks
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Chen, KH., Yang, HY. A cross-country comparison of productivity growth using the generalised metafrontier Malmquist productivity index: with application to banking industries in Taiwan and China. J Prod Anal 35, 197–212 (2011). https://doi.org/10.1007/s11123-010-0198-7

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