Public capital and productive efficiency in the Spanish regions (1964–89)
The article analyses the evolution of the differences in economic conditions among Spanish regions from the perspective provided by the recent advances made in economic growth empirics. Although convergence is usually established in terms of Gross Value Added (GVA) per capita, in the case of Spain it is of special interest to break it down into three separate elements: activity rate, employment rate, and productivity of labour. Regional differences in unemployment rates, which persist for long periods of time, are identified as a force against convergence. After describing the distinction between conditional and non conditional convergence, the paper considers the role played by the product…
Factors explaining the interest margin in the banking sectors of the European Union
Abstract This study analyses the interest margin in the principal European banking sectors (Germany, France, the United Kingdom, Italy and Spain) in the period 1993–2000 using a panel of 15,888 observations, identifying the fundamental elements affecting this margin. Our starting point is the methodology developed in the original study by Ho and Saunders [Journal of Financial and Quantitative Analysis XVI (1981) 581–600] and later extensions, but widened to take banks' operating costs explicitly into account. Also, unlike the usual practice in the literature, a direct measure of the degree of competition (Lerner index) in the different markets is used. The results show that the fall of marg…
Effects of the degree of financial constraint and excessive indebtedness on firms’ investment decisions
Abstract The aim of this paper is to provide empirical evidence of the importance of financial variables in explaining differences in investment rates among firms. The main contributions of the study are twofold: the use of a variable that approximates the degree of financial constraint, and the effect of indebtedness on investment is allowed to be non-linear. The empirical application to the case of Spain is of interest because of the large proportion of SMEs among Spanish firms (SMEs being highly dependent on bank financing) and the drastic tightening of credit conditions in Spain during the banking crisis. The results provide evidence of the impact of financial constraints on firms’ inve…
Income structure, profitability and risk in the European banking sector: The impact of the crisis
This study sets out to analyse whether the effect of the income structure on the risk and profitability of European banks has changed as a result of the crisis and if it varies according to banks’ specialisation in a particular type of banking business. To do so, it estimates the income structure over the period 2002–2012 using data for a panel of European banks. The study also examines if there are differences between investment-oriented banks and banks specialising in financial intermediation in terms of the effect of income structure on risk and profitability. Our findings show that an increase in the share of non-interest income has a negative impact on profitability, although the effec…
Transport infrastructures, spillover effects and regional growth: evidence of the Spanish case
The impact of transport infrastructures on the economic growth of both regions and sectors, distinguishing among modes of transport, is analysed. An attempt is also made to capture the spillover effects associated with transport infrastructures. Two different methodologies are used: the first adopts an accounting approach based on a regression on indices of total factor productivity; the second uses econometric estimates of the production function. Very similar elasticities are obtained with both methodologies for the private sector of the economy, both for the aggregate capital stock of transport infrastructures and for the various types of infrastructure. However, the disaggregated result…
The impact of the financial crisis on financial integration, growth and investment
Financial crises, and in particular those of the past few years, have severe consequences for the affected economies. In this paper we analyse the impact of financial development and European financial integration on growth and we find no reversal of the growth benefits of financial development and integration in recent years. This highlights the economic cost of regulatory changes that would reverse European financial integration. We also find that, following a financial crisis, investment declines more in countries with a greater degree of uncertainty aversion, which can be informative for evaluating post-crisis economic performance.
Infrastructures and Productivity in the Spanish Regions
The aim of this paper is to analyse the role of public capital, the types of infrastructures in which it is invested, and their territorial distribution in the gains in productivity of the private sector in the Spanish regions in the period 1964-1991 using panel data techniques to control for unobserved state-specific characteristics. The results obtained show how the infrastructures most directly linked to the productive process present a significant and positive effect on productivity. They also show the importance of the network effect of the infrastructures of a productive nature as well as a decrease in the elasticity associated with such infrastructures as development progresses. El p…
Bank competition and multimarket contact intensity
Abstract This paper analyzes the effect of multimarket contact on bank competition. We propose a completely new multimarket contact indicator that not only considers the existence of contacts between banks, but also their intensity, by analyzing the strength–weakness position of banks in terms of branch numbers in comparison to their rivals in the markets where they coincide. We test the new indicator empirically in the context of the Spanish banking sector. The main results suggest a negative relationship between market power and the number of multimarket contacts, rejecting the hypothesis of tacit collusion in the Spanish banking sector. However, the result changes completely when we cons…
Regional financial development and bank competition: effects on firms' growth
Fernandez de Guevara J. and Maudos J. Regional financial development and bank competition: effects on firms' growth, Regional Studies. This paper analyses the effect of regional financial development and bank competition on firms' growth using the Spanish provinces as a testing ground. The results show that firms in industries with a greater dependence on external finance grow faster in more financially developed provinces. The results also show that bank monopoly power has an inverted-‘U’ effect on firms' growth, suggesting that market power has its highest effect at intermediate values. The effect is heterogeneous among firms according to the financial dependence of the industry to which …
The economic impact of European financial integration: The importance of the banking union
Abstract The aim of the paper is to analyze the effect of European financial integration on economic growth. We focus on how the international financial crisis that started in 2007 has affected integration and growth. By combining information at country, sector and firm level, we quantify the effect of financial integration on financial development and therefore on economic growth. Our results illustrate that until the outbreak of the crisis, a significant part of financial development is attributable to progress in integration, with a positive contribution of around 0.04 pp to the EU-15 countries’ GDP growth over the period 1999–2007 of advance in integration. However, during the crisis, t…
The evolution of technological inequalities: country effect vs industry composition
PurposeUsing the EU‐KLEMS database for 12 countries and 16 industries, the purpose of this paper is to analyze the differences in technological capital intensity (R&D capital stock as a percentage of GVA) between industries and the evolution of inequalities between the EU‐11 and the USA, as well as between EU countries.Design/methodology/approachThe authors use shift‐share analysis and a Theil inequality index to break down these inequalities and to quantify the importance of either a country or a specialization effect.FindingsResults from the shift‐share analysis show that there was a technological gap in favor of the USA until the mid‐1990s linked to the greater accumulation of techno…
Revisiting the quiet life hypothesis in banking using nonparametric techniques
Early studies testing the quiet life hypothesis in banking found strong evidence that banks in more concentrated markets exhibit lower cost efficiency levels. More recent studies have reexamined the issue in different contexts, with mixed results. These approaches are based on stipulating a linear re- lationship between market power and efficiency in banking, which might be problematic, as suggested by the literature on efficiency analysis. We explore how bank cost efficiency measures are related to market power using flexible techniques, which are more consistent with those employed to measure efficiency in the first stage of the analysis. Our study focuses on the Spanish banking industry,…
Regulation and efficiency: the case of European railways
Abstract During the long period of regulation of the railway system in Europe (1950s–1990s) the companies notably improved their levels of productivity. However, parallel to this, the state of their financial accounts also significantly worsened. In order to explain this fact we have estimated both cost and revenue frontier functions, calculating the losses associated with both cost and revenue inefficiencies as well as inefficiencies on the cost side. The results obtained show the existence of significant potential losses of revenue, which can be explained above all by the strong policy of regulation and intervention reigning in this period. A better commercial policy and a supply adapted …
Cross-country comparisons of competition and pricing power in European banking
Abstract Studies of banking competition and competitive behavior both within and across countries typically utilise only one of the few measures that are available. In trying to assess the relative competitive position of banking markets in 14 European countries, existing indicators of competition are found to give conflicting predictions across countries, within countries, and over time. This is because indicators of competition tend to measure different things and are additionally influenced by cross-country differences in cost efficiency, fee income levels, real economic growth and inflation. We attempt to separate bank pricing power from these embodied influences and derive more consist…
Deregulation, liberalization and consolidation of the Mexican banking system: Effects on competition
Este articulo analiza la evolucion de la competencia en el sistema bancario Mexicano en el periodo 1993-2005, periodo de desregulacion, liberalizacion y consolidacion del sector. Para ello se utilizan dos medidas de competencia derivadas de la teoria de la Organizacion Industrial: el indice de Lerner y el estadistico H de Panzar y Rosse. La evidencia empirica no permite rechazar la existencia de competencia monopolistica. El indice de Lerner muestra una disminucion en la rivalidad competitiva en el mercado de los depositos y un incremento en el mercado de los prestamos, observandose una estrategia de subsidiacion cruzada entre ambos mercados. Los resultados obtenidos cuestionan la efectivid…
The social costs of bank market power: Evidence from Mexico
This paper estimates the social costs of market power (Harberger's triangle) in the Mexican banking system over the period 1993–2005. It also tests the so-called “quiet life” hypothesis which postulates a negative effect of market power on bank management efficiency. The social cost attributable to market power in 2005 is 0.15% of GDP, while that deriving from the cost (profit) inefficiency of banking management is 0.021% (0.075%) of GDP. The results allow us to reject the quiet life hypothesis in the deposits market. However, market power in the setting of the interest rate on loans has a negative effect on cost efficiency. Journal of Comparative Economics 36 (3) (2008) 467–488.
Convergence in OECD countries: technical change, efficiency and productivity
The aim of this study is to analyze labor productivity convergence in the countries of the OECD over the period 1965-90. A non-parametric frontier approach is used to calculate the Malmquist productivity index. By breaking it down, the contribution to the growth of labor productivity of technical progress, of changes in efficiency, and of the accumulation of inputs per worker are quantified. Unlike other studies, the results obtained show that technical change has worked against labor productivity convergence, since it has always been greater in the countries with higher labor productivity. El trabajo tiene como objetivo básico analizar la contribución de las distintas fuentes del crecimien…
Cost and profit efficiency in the Spanish banking sector (1985–1996): a non-parametric approach
The aim of this article is to analyse the efficiency in costs and in profits of the Spanish banking sector (SBS) in the period 1985–1996 using a non-parametric approach. The results obtained show the existence of profit efficiency levels well below those corresponding to cost efficiency, alternative profit efficiency being below standard profit efficiency. These results imply the existence of market power in the setting of prices and/or the existence of differences in the quality of bank output reflected in the differences in prices. With regard to the immediate future, of full economic and monetary integration, the reduction of profit levels associated with higher competitive pressure may …
The determinants of efficiency: the case of the Spanish industry
The aim of this paper is to analyse the factors explaining the technical efficiency of Spanish industrial sectors during the period 1991–1994 using the Survey of Business Strategies (SBE) of the Ministry of Industry and Energy. It analyses whether efficiency can be explained by factors external to the firm such as the degree of competition in the markets in which it operates, characteristics of the firm (size, organization, advantages of location, participation of public capital, etc.), as well as the effects of dynamic disturbances that may affect the degree of utilization of the productive capacity.
EXPLANATORY FACTORS OF MARKET POWER IN THE BANKING SYSTEM
The aim of the study is to analyse the explanatory factors of market power in the banking system. Using as laboratory the Spanish banking system in the period 1986–2002, results show an increase of market power from the mid-1990s. Of the set of variables that the model posits as explaining market power, those with the greatest explanatory power are size, efficiency and specialization; concentration is not significant. This last result shows the limitations of the approaches, studies and decision-making rules of economic policy that uses market concentration as a proxy for the degree of competition.
Cost and profit efficiency in European banks
El analisis de ratios contables como indicadores de competitividad ha sido completado y ocasionalmente revisado por la creciente utilizacion de indicadores mas sofisticados de eficiencia. En los ultimos anos, mas de un centenar de trabajos han analizado la eficiencia de las instituciones financieras, centrandose mayoritariamente en la vertiente de los costes. Sin embargo, los escasos estudios que estiman funciones frontera de beneficios obtienen niveles de eficiencia en beneficios mucho menores que en costes, lo que implica la existencia de importantes ineficiencias en la vertiente de los ingresos. Ademas, son pocos los estudios que realizan comparaciones a nivel internacional, y ninguno de…
Public capital, productive efficiency and convergence in the Spanish regions (1964-93)
This paper analyses the behaviour of productive efficiency in the Spanish regions for the period 1964–93. From a growth accounting approach, it describes the regional evolution of total factor productivity (TFP'), based on a private inputs production function. A stricter measure of efficiency is then quantified, which is not equivalent to Solow's residual, since public capital is included in the production function and constant returns to scale are not imposed. Finally, on the basis of the measures of total factor productivity and efficiency, the study discusses the existence of technological convergence among Spanish regions and the role played in it by public capital. The renewed interest…
Measuring welfare loss of market power: an application to European banks
From a model of imperfect competition among banking firms, this study derives an analytical expression that allows empirical quantification of the welfare loss associated with imperfect competition. Its application to the specific case of the European banking system shows that in spite of the process of deregulation, market power increased during the 1990s in 10 out of the 15 countries of the EU. The welfare loss associated with market power represents close to 2.5% of EU GDP.
Integration and competition in the European financial markets
Financial integration in Europe should affect the competition between markets and intermediaries and generate a convergence of both interest rates and margins among the different countries. This paper analyses the evolution of the convergence in interest rates and the level of competition and its inequalities among the European banking systems for the period 1993 to 2001. The inequality index used ?the Theil index- allows us to break down the inequalities so that the importance of either a country effect or a specialization effect is quantified. If the former effect dominates it would mean that the national banking markets are segmented as a consequence of the existence of obstacles or barr…
Firms’ investment, indebtedness and financial constraints: Size does matter
Abstract This paper provides evidence of the importance of size in explaining the impact of financing conditions on firms´ investment rate. The study makes two main contributions: a) it allows the relationship between indebtedness and firms´ investment to be non-linear; and b) it contrasts whether the impact of indebtedness and the degree of financial restriction differ depending on the size of the company (SME vs large). Results show that while in SMEs indebtedness has a negative impact on investment, there is a threshold beyond which this effect is even larger (based on a debt/assets ratio of 59%). However, in large companies the impact of indebtedness is positive although there is also a…
The importance of intangible assets in regional economic growth: a growth accounting approach
Spain is one of the few countries in the world that has information on investment in intangible assets with a regional breakdown, so providing evidence of its importance as a factor in regional growth is the main value added of this paper. Series of capital stock in intangible assets are constructed by regions, which incorporate not only those the national accounts consider as investments and are therefore included in gross value added (GVA), but also the intangible assets not included in GVA, which the recent literature understand to be an important source of economic growth. Using the growth accounting approach, the results show that intangible assets explain 14.3% of Spain’s GVA growth, …
The determinants of net interest income in the Mexican banking system: An integrated model
This paper analyzes net interest income in the Mexican banking system over the period 1993-2005. Taking as reference the seminal work by Ho and Saunders (1981) and subsequent extensions by other authors, our study models the net interest margin simultaneously including operating costs and diversification and specialization as determinants of the margin. The results referring to the Mexican case show that its high margins can be explained mainly by average operating costs and by market power. Although non-interest income has increased in recent years, its economic impact is low. El trabajo analiza el margen de intermediación de la banca Mexicana en el periodo 1996-2005. Tomando como referenc…
Interest rates, expectations and the credibility of the Bank of Spain
The purpose of the paper is to pinpoint the date of the change of monetary policy regime which occurred in Spain during the year 1984, when it moved away from controlling monetary aggregates towards interest rate targeting. The most likely date for the change is estimated and, surprisingly, there is evidence that agents learned about the new intermediate target quite rapidly.A week after the change, the term structure of interest rates showed how market agents attributed much more informational content to interest rate changes than they had previously. Two types of transitions are tried: a one-step and a gradual logistic swithing function.
Banking in Spain
This chapter aims to explore recent developments in the Spanish banking industry and the measures adopted in recent years to correct the imbalances that built up during the expansion, in order to give an up-to-date picture of the sector in the international context. To this end, the chapter is divided into four sections. The section following the Introduction examines the importance of the banking sector in the Spanish economy using various indicators of banking penetration. The next section, “Characteristics of the Spanish Banking Sector: Recent Trends”, looks at key features of the banking sector and its evolution in terms of a range of measures, including margins, profitability, efficien…
Total factor productivity measurement and human capital in OECD countries
Abstract This paper analyses the Total Factor Productivity (TFP) evolution in OECD countries by breaking down productivity gains into technical change and efficiency change. To avoid biases, Malmquist indices of productivity, including human capital, are estimated. The results indicate that, in fact, the inclusion of human capital has a significant effect on the accurate measurement of TFP.
Human capital in OECD countries: Technical change, efficiency and productivity
The aim of this paper is to analyse the role of human capital in the productivity gains of the OECD countries in the period 1965-90, breaking down the productivity gains into technical change and gains in efficiency. For this purpose we use both a stochastic frontier approach and a non-parametric approach (DEA) and calculate Malmquist indices of productivity. The results obtained indicate the existence of both a level effect (a higher level of human capital raises labour productivity) and a rate effect (a higher level of human capital affects positively the rate of technical change) associated with human capital. The differences among countries in endowments of human capital have worked aga…
Interest Rates and Net Interest Margins: The Impact of Monetary Policy
In this chapter, we examine the determinants of bank net interest margin, focusing on the effect of interest rates, and thus monetary policy decisions. The analysis is carried with a panel of banks from 32 OECD countries over the period 2003–2014. The results show a quadratic relationship between net interest margins and interest rates, implying that the variation of the latter has a greater effect when interest rates are low. An important policy implication of the results is that there is a trade-off between economic growth and financial stability associated with the impact of expansionary monetary policy when the level of interest rates is very low. As a result, if the current scenario of…
The evolution of market power in European banking
This paper analyses the effect that European financial market integration has had on the evolution of the banks' market power disparities. The results show that market power disparity has narrowed among eurozone banks. The reduction is attributable to the convergence in the average levels of market power of the European banking sectors. In contrast, the disparities observed within each country have remained stable. As a result, the measures adopted to advance towards a single banking market should be complemented by measures at the national level designed to intensify competition among the banks within a given country.
The cost of market power in banking: Social welfare loss vs. cost inefficiency
Abstract This paper analyses the relationship between market power in the loan and deposit markets and efficiency in the EU-15 countries over 1993–2002. Results show the existence of a positive relationship between market power and cost X-efficiency, allowing rejection of the so-called quiet life hypothesis [Berger, A.N., Hannan, T.H., 1998. The efficiency cost of market power in the banking industry: A test of the ‘quiet life’ and related hypotheses. Review of Economics and Statistics 8 (3), 454–465]. The social welfare loss attributable to market power in 2002 represented 0.54% of the GDP of the EU-15. Results show that the welfare gains associated with a reduction of market power are gre…
Inequalities in the efficiency of the banking sectors of the European Union
The aim of this study was to analyse the inequalities of cost and profit efficiency existing in the banking sectors of the European Union, and the origins of the inequalities observed. The decomposition of the Theil index shows that on the cost side the greatest differences within groups occur when the total sample is divided into institutional groups (commercial banks, saving banks, co-operative banks and other banks), the country effect and the type of productive specialization being more important in explaining the differences between groups. In profit efficiency, there are great differences between countries, but none between specialization clusters.
Patents, technological inputs and spillovers among regions
This paper analyses the importance of different technological inputs (R&D and human capital) and different spillovers in explaining the differences in patenting among Spanish regions in the period 1986-2003. The analysis is based on the estimation of a knowledge production function. A region¿s own R&D activities and human capital are observed to have a positive significant effect on innovation output, measured by the number of patents. R&D spillovers weighted by the distance and the volume of trade flows between regions cause positive effects on a region¿s patents. However, distance matters more than the intensity of trade flows and the R&D spillover effects between regions are bounded: spi…