Productivity growth in European banking

Abstract

This article analyzes productivity growth for European banks over the 1995–2001 period. In contrast to previous literature, the study encompasses the overwhelming majority of current European Union (EU) countries—all excepting Greece and those joining the EU in 2004. In addition, we use resampling methods so as to gain statistical precision, which turns out to be especially important due to the limitations of the database. In a second stage, additional nonparametric methods—in an attempt to be fully consistent—are used to disentangle some reasons as to why productivity differentials might exist. Results show that productivity growth has occurred in most countries, mainly due to improvement in production possibilities. The bootstrap analysis yields further evidence, as for many firms and countries productivity growth, or decline, is not statistically significant. The two-stage analysis provides some additional insights, suggesting that the relevance of environmental variables found in other studies focusing on efficiency could be lessened when focusing on productivity.