About Me

Currently in Paris, France
Ph.D in Banking, and Management consultant. My main expertise covers: efficiency assessment, causality analysis; operational risk management, project management and people development.

Monday, October 25, 2010

Banking productivity and economic growth in emerging countries

I passed my viva-voce for the  doctorate exam in Banking and Finance in June 2010. Below is a summary of the main ideas of my Ph.D thesis that I wanted to share. I am open for comments, and happy to discuss the topics (you can kindly download a copy of my thesis at the link provided below).

Summary :

The aim of my PhD thesis is: first, to check for differences in technology between the Islamic and the conventional banking systems in the Middle East & North Africa and South East Asia regions, and second, to investigate the impact of the banking productivity on economic growth in the MENA region.

Research questions :

  1. Are Islamic banks more cost efficient than their conventional counterparts?
  2. Are there differences in technology between Islamic and conventional banks?
  3. What is the impact of banking cost efficiency on economic growth in the MENA region? And does economic growth affect banking cost efficiency?

Methodology :
  • For the research questions 1 and 2 :  Stochastic Frontier Approach, and Stochastic Meta-frontier Approach for cost efficiency estimations (following Battese, 2002 and Bos & Schmiedel, 2007)
  • For the research question 3 :  Causality analysis using a two-step Generalized Methods of Moments (following Windmeijer, 2005)

Conclusions :

This Ph.D. thesis provided two novelties:
  1. A cross-country comparison between Islamic and conventional banking cost efficiency highlighting the quasi-inexistent technology gap between the two banking system
  2.  The existence of a causality and reverse causality between banking productivity and economic growth in the MENA region

Three major remarks stem out of my results :
  1. Islamic banking will need more than just the replication and adaptation of conventional contracts for its development in order to achieve its main goal : promoting social welfare
  2. Efficient investments and regulation in the Middle East & North Africa region should promote a higher banking productivity level and financial deepening

Future research:
Considering future research, I think it should be interesting to investigate the post 2008 financial crisis in emerging countries, and more precisely investigate to which extend Islamic banks have moderated the effect of the crisis in these countries. 
I guess the main limitation in this case would be to gather relevant data in order to run a causality analysis. As some countries have a certain opacity around their data disclosure (at both the macro and micro levels). 
I would cite for example the UAE which purposely was not publishing its macro data in the last period, fearing speculation consequences on the economy.
Another point of reference for future research is to assess the impact of Islamic banks' investments efficiency on the economy as a whole. This would be a very useful study if Islamic banks give access to their investment portfolio mix, which is not an easy task.

Link to my PhD thesis