Efficiency in the Pakistani Banking Industry: Empirical Evidence after the Structural Reform in the Late 1990s

Atsush Iimi

Abstract


This article examines the change in technical (in)efficiency
of the Pakistani banking industry after the structural reform started in
the late 1990s. With international assistance, the Pakistani government
has undertaken the restructuring and preparation for privatisation of
national commercial and development banks, of which the main goal is the
improvement of the efficiency in financial markets. Despite the small
sample size, the estimated stochastic production frontier indicates that
employees are statistically productive, but capital in terms of branch
network is not productive. This is an example counter to the common view
that in a less developed banking industry, employees are too often idle
and are not productive at all. It is also shown that the efficiency
performance of the structural adjustment programmes is in marked
contrast among banks. Some banks are found to have improved their
technical efficiency during the reform period, while the efficiency
improvement of others was ambiguous.

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DOI: https://doi.org/10.30541/v42i1pp.41-57

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