Title: Measuring and decomposing productivity change using Hicks-Moorsteen index numbers: evidence from Indian banks

Authors: Hitesh Arora; Padmasai Arora

Addresses: FORE School of Management, B-18, Qutub Institutional Area, New Delhi – 110 016, India. ' Keshav Mahavidyalaya, University of Delhi, H-4-5 Zone, Pitampura, Delhi-110 035, India

Abstract: Bank productivity improvement is a vital instrument for economic development, and effective policy making in this area requires information regarding main drivers of productivity growth. Hicks-Moorsteen (H-M) index numbers as given by O'Donnell is a powerful method for measuring and decomposing total factor productivity (TFP) changes. This paper examines year-to-year TFP changes experienced by Indian banks (public and private) in the post liberalisation era (1991-1992 to 2007-2008) using H-M index numbers. The main finding of the study is that productivity (TFP) in Indian banks has remained stagnant since 1991 to 1992 with no significant differences observed in the three sub-periods studied and type of ownership has a significant effect on scale efficiency in Indian banks. Stagnation in productivity in Indian banks, resulting from technological regress, is a cause of concern and policy setting should be reshaped and re-oriented towards productivity enhancement.

Keywords: banking; TFP; total-factor productivity; productivity index; John Hicks; Richard Moorsteen; ANOVA; analysis of variance; India; index numbers; productivity changes; public banks; productivity improvement; economic development; policy making; productivity growth; change measurement; decomposing productivity change; Christopher O'Donnell; year-to-year changes; private banks; post liberalisation; stagnation; bank ownership; scale efficiency; technological regress; productivity enhancement; productivity management; quality management.

DOI: 10.1504/IJPQM.2013.050569

International Journal of Productivity and Quality Management, 2013 Vol.11 No.1, pp.73 - 95

Available online: 27 Nov 2012 *

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