Assessing Output and Productivity Growth in the Banking Industry

Abstract

This paper assesses the evolution of output and productivity in the Greek banking industry for the period 1990-2006. Three main categories of bank output were estimated based on modern theoretical approaches, while for the aggregation and estimation of output and inputs and the estimation of productivity (partial and total factor) we relied on the index number method (Tornqvist index). Additionally, we considered the effect of labor quality on banks’ productivity and using a growth accounting framework we examined the contribution of total factor productivity (TFP) to bank output growth. The results show that bank output and labor productivity increased considerably during the period under examination, outpacing the respective GDP growth and labor productivity of the Greek economy. Capital productivity and TFP of the Greek banking industry have also improved remarkably mainly since 1999, as a result of the structural changes that took place within the industry, capital investments (mainly in IT equipment) as well as improvement in the quality of human capital.Bank output; user-cost approach; total factor productivity; Tornqvist index; growth accounting; labor quality