Determinants of Bank Efficiency in the Transition Economies in Europe: A Comparison of Frontier Techniques with Panel Data

Abstract

This study investigates the evolution of banking efficiency of post-communist new EU member countries over a time span 1998 to 2003. In these transition economies major strides were taken during this period to establish functioning market economies and financial systems for their EU membership in 2004. In light of the EU enlargement, it is significant to examine whether significant efficiency improvements were achieved in their banking systems. Adopting the approach by Sickles (2005), we employ a wide range of non-parametric, semi-parametric and parametric tools to evaluate output efficiency of transition banking. In addition, we analyse the impact of several macroeconomic, banking sector specific and bank specific factors on banking efficiency. The results show that the efficiency estimators are sensitive to the choice of utilized methodology. The impact of the various factors however, is relatively stable among the measurement techniques except the impact of macroeconomic factors.

Keywords: Banking, Efficiency, DEA, econometrics, EU accession