Productivity growth in network models: An application to banking during the financial crisis

Abstract

We construct Malmquist Productivity indices for two-stage processes. A two-stage data envelopment analysis model with an additive efficiency decomposition is used for the modelling of the two-stage process. We incorporate prior information into the analysis using the Weight Assurance Region model. This model offers advantages such as the weights representing the contribution of each stage to the overall process are always positive and we also can restrict them into a region given the available prior information. We extend this model from efficiency analysis to productivity analysis and we calculate Malmquist Productivity indices using four alternative decomposition approaches. The model is applied to a panel of banks in Central and Eastern European countries and productivity change is evaluated for three periods of the financial crisis. The alternative decompositions allow us to examine the various sources of productivity change during the financial crisis. Convergence patterns are also examined.

Keywords:

• Data envelopment analysis
• two-stage
• productivity growth
• transition economies
• banking efficiency

Acknowledgements

We would like to thank the editors Thomas Archibald and Jonathan Crook and the reviewers for their constructive comments on an earlier version of our manuscript. Any remaining errors are solely the authors’ responsibility. We would also like to thank Erwin Diewert, Kevin Fox, Antonio Peyrache, Giannis Karagiannis, and the other members of the 3rd Conference of The Society for Economic Measurement: “Efficiency & Productivity Analysis at the Aggregate Level-Session C” that took place on 06–08 July 2016 at Thessaloniki, Greece for the comments made on an earlier version of the paper.