Productivity and Technical Change in Malaysian Banking: 1989–1998

This study examines the impact of deregulation and technological change on the productivity of Malaysian banks over the period 1989–1998. Malmquist indices constructed with nonparametric DEA techniques are decomposed into their pure efficiency, scale efficiency, and technological change components. Our findings indicate an erosion of banking productivity that masks divergent tendencies among its component elements. These are dominated by adverse effects of technological change, which are associated with a reduction in the labor intensity of banking activity. Consistent with the mixed findings reported in the literature, the present investigation suggests that regulatory reform and liberalization are not sufficient conditions for productivity improvement.JEL classification: D24, G21This paper was written while Dogan was a member of Monash University Malaysia. Financial support from the Faculty of Business and Economics at Monash University is gratefully acknowledged, as are the constructive comments from two anonymous referees.