Financial Liberalisation and Increase in Productivity Among Middle Eastern and North African (MENA) Banks

Abstract

The study investigates whether deregulation and economic reforms transformed the MENA banking sector into a more productive and efficient market. This is the first study of this kind to cover a large sample of 11 MENA countries for an extended and recent period (14 years). Initially the study estimates the productivity and efficiency of MENA commercial banks by using Malmquist DEA by estimating productivity (TFP), technological and technical efficiency, and scale efficiency change in order to investigate to what extent banking productivity in MENA economies has improved during the study period. Then, we use Tobit model to investigate the impact of accounting and macroeconomic variables on the total factor productivity of MENA commercial banks. Our results suggest that expenses preference behaviour leads to be more productive banks in the examined period and study countries. Whilst banking productivity is enhanced by financial reforms and technological progress, our findings overall do not indicate that foreign participation or state ownership lead to more productive banks, whilst suggesting that a different mix of policy should be adopted depending on the characteristics of the banking system on the examined countries.