Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 289: Efficiency of Labour Use in the Swedish Banking Industry: A Stochastic Frontier Approach

George E. Battese (), Almas Heshmati () and Lennart Hjalmarsson
Additional contact information
George E. Battese: Department of Econometrics, University of New England, Postal: Armidale, NSW 2351, Australia
Almas Heshmati: Dept. of Economic Statistics, Stockholm School of Economics, Postal: P.O. Box 6501, S-113 83 Stockholm, Sweden
Lennart Hjalmarsson: Department of Economics, Göteborg University, Postal: P.O. Box 640 , SE 405 30 Göteborg , Sweden

Abstract: The purpose of this paper is to analyse the impact of the deregulation of the Swedish banking industry in the mid-1980s, and the consequent banking crisis, on productive efficiency and productivity growth in the industry. An unbalanced panel of Swedish banks is studied over the period, 1984 to 1995. A total of 1275 observations are analysed for 156 banks that were observed for between two and twelve years. We adopt a translog stochastic frontier model to estimate the labour-use requirements in terms of the variables, loans, deposits, guarantees, number of branches and total inventories, together with the year of observation. The inefficiency effects in the labour-use frontier are modelled in terms of the number of branches, total inventories, the type of bank and year of observation.

Keywords: Labour demand; labour-use; technical efficiency; banking industry

JEL-codes: C23; D24; G21

23 pages, First version: December 1, 1998. Revised: April 13, 1999.

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