This study investigates the sources of bank productivity growth in China over the period 2002-2009. In order to perform this research, we propose an advanced index - input slack-based productivity index (ISP) - a model that disaggregates total factor productivity growth into each input productivity change. Funds, capital, and employees are chosen as the inputs, whereas loans and other earning assets are outputs in this study. Our results show that technological gains transcend the efficiency regressions and result in total factor productivity growth. More specifically, technical progress in capital productivity reveals the dominant force behind the total factor technical change and productivity improvement. In addition, this paper uses these disaggregation terms to find out the competitive advantages and disadvantages of input usages for each Chinese bank. These findings indicate that the ISP index provides more insights than traditional total factor productivity indices.
- Efficiency change
- Input slack-based productivity index
- Productivity growth
- Technical change