Deregulation, bank efficiency and economic cooperation across China–Taiwan Strait

Abstract

This study investigates whether deregulation has affected bank efficiency in the ‘cross-strait’ relationship between China and Taiwan. I measure bank efficiency across three periods – after Taiwan and China joined the World Trade Organization, the global financial crisis, and the signing of the Economic Cooperation Framework Agreement (ECFA) – and show that Taiwanese banks were significantly more efficient than their Chinese counterparts. These results show that the ECFA platform has not improved bank efficiency and thus has failed to function effectively. This finding suggests that China and Taiwan should continue negotiating within the ECFA context to enhance cross-strait financial cooperation.