Resource-based productivity in the closed banking sector: the case of Ethiopian banks

Abstract

PurposeThe current paper's goal is to examine the productivity of the closed banking sector evidenced from Ethiopia. In addition, the inclusion of intangibles on productivity was examined in the current paper.Design/methodology/approachFirst, the standard Malmquist Productivity Index (MPI) was employed for 13 commercial banks for both stages. Second, by excluding the state-owned commercial bank, the analysis employed a bootstrapped MPI for the robust and comprehensive conclusion. Furthermore, from 2010 to 2019, the fixed effect Ordinary Least Square (OLS) regression with balanced panel data was used.FindingsThe standard MPI in both stages shows that the productivity of Ethiopian commercial banks is declining. The technological shock was the main reason for the loss. The catch-up in both stages scored above unity, mainly due to the pure efficiency change. Besides, when combined with tangible resources, the inclusion of resource-based view (RBV) proxy variables reduces technological shock regress and ultimately improves productivity change. The bootstrapped MPI also reveals that technological shock is the primary source of the productivity decline. However, efficiency change also contributes to the productivity decline based on this estimation.Research limitations/implicationsFuture research could examine the more extensive productivity analysis by considering the primary sources of data collections for resource-based variables.Practical implicationsAccording to the study's results, banking regulatory authorities and bank management, including the shareholders, should continue to invest in cutting-edge technology to improve the productivity of the banking sector.Originality/valueThis is the first comprehensive study of productivity for Ethiopian commercial banks based on the standard MPI, bootstrapped MPI, and OLS by incorporating all resources into the analysis.