Premium
FINANCIAL DEVELOPMENT AND PRODUCTIVE EFFICIENCY IN OECD COUNTRIES: AN EXPLORATORY ANALYSIS *
Author(s) -
ARESTIS PHILIP,
CHORTAREAS GEORGIOS,
DESLI EVANGELIA
Publication year - 2006
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2006.00502.x
Subject(s) - productive efficiency , data envelopment analysis , economics , scrutiny , production efficiency , financial market efficiency , production (economics) , efficiency , financial deepening , macroeconomics , econometrics , finance , financial ratio , financial intermediary , mathematics , mechanical engineering , mathematical optimization , statistics , estimator , political science , law , engineering
The recent literature provides evidence for a positive relationship between financial deepening and growth but is quite silent on the exact channels through which it materializes. Theory suggests that production efficiency should be one of those main channels. We attempt to capture this channel by modeling productive efficiency explicitly and constructing efficiency frontiers using data envelopment analysis. We apply this procedure to consider whether financial development creates productive efficiency gains in the industrialized OECD countries. Our results show that financial development contributes to productive efficiency. However, this effect weakens over time during the period under scrutiny. Moreover, we find that the effects of financial deepening on productive efficiency depend on the degree of efficiency already achieved.