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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 21, No. 1, pp.195-227
ISSN: 1225-0279 (Print)
Print publication date 29 Feb 2008
Received 18 Oct 2007 Revised 11 Mar 2008

International Comparison of Japanese and Korean Banking Efficiency

Tomohiko Inui ; Jungsoo Park ; Hyun-Han Shin
Professor, College of Economics, Nihon University, Tokyo 101-8360, Japan, Tel: +81-3-3219-3468 inui@eco.nihon-u.ac.jp
Associate Professor, School of Economics, Sogang University, Seoul 121-742, Korea, Tel: +82-2-705-8697 jspark@sogang.ac.kr
Associate Professor, School of Business, Yonsei University, Seoul 120-749, Korea, Tel: +82-2-2123-5466 hanshin@yonsei.ac.kr

JEL Classification: D61, G21, G34

Abstract

This study investigates the pattern of changes in efficiency and productivity of the banking sectors at the firm level for the period of 1991-2005 using output distance function and applying the one-stage stochastic frontier approach. This study pools Japanese and Korean bank dataset to effectively compare the pattern of change between Japanese and Korean banking efficiency. Our results indicate that estimates of technical progress, technical efficiency, and total factor productivity (TFP) depend on the viewpoint about the true function of bank: intermediation approach, value-added approach, or operating approach. While intermediation approach results imply that the productivity has overall declined over the sample period for the both country banks, operating approach results are mixed for the two countries. Value-added approach indicates positive TFP growth for the both countries. In most cases, the levels of technical efficiency were further behind the technological frontier for the Korean banks than for the Japanese banks.

Keywords:

Stochastic frontier analysis, Technical progress, Technical efficiency, Total factor productivity

Acknowledgments

The authors would like to thank the participants of the 15th Seoul Journal of Economics International Symposium on October 23, 2007 at Seoul National University for their helpful comments on an earlier version of the paper. We would also like to thank two anonymous referees for their valuable suggestions

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