Efficiency,technical change,and returns to scale in large US banks: Panel data evidence from an output distance function satisfying theoretical regularity |
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Authors: | Guohua Feng Apostolos Serletis |
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Institution: | 1. Department of Econometrics, Monash University, Victoria 3800, Australia;2. Department of Economics, University of Calgary, Calgary, Alberta, Canada T2N 1N4 |
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Abstract: | This paper provides parametric estimates of technical change, efficiency change, economies of scale, and total factor productivity growth for large banks (those with assets in excess of $1 billion) in the United States, over the period from 2000 to 2005. This is done by estimating an output distance function subject to theoretical regularity within a Bayesian framework. We find that failure to incorporate theoretical regularity conditions results in mismeasured shadow revenue and/or cost shares, which in turn leads to perverse conclusions regarding productivity growth. Our results from the regularity-constrained model show that total factor productivity of the large US banks grew at an average rate of 1.98% over the sample period. However, our estimates also show a clear downward trend in the growth rate of total factor productivity and our decomposition of the primal Divisia total factor productivity growth index into its three components – technical change, efficiency change, and economies of scale – indicates that technical change is the driving force behind this decline. |
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Keywords: | C11 D24 G21 |
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