Journal of Applied Finance & Banking

A parametric measure of productivity change from hyperbolic distance function: Application to the Vietnamese banking industry

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  • Abstract

    This paper introduces a new parametric measure of productivity change using the hyperbolic distance function. More specifically, the paper first estimates a stochastic translog hyperbolic distance function, which satisfies regularity conditions, using the Bayesian approach. Then it derives an expression to measure scale efficiency from this estimated function. Finally, it shows measurements of three components of productivity change. The first component, technical efficiency change, is computed by a ratio of hyperbolic distances between two consecutive periods. The second component, technological change, is measured as a ratio of distances along a chosen input-output vector. The third component, scale efficiency change, is determined by a ratio of scale efficiency estimates between two consecutive periods. This new measure is then applied to investigate productivity change of the Vietnamese banking sector during the 20002006 period. The empirical results show that the Vietnamese banking industry experiences modest productivity growth. The thrust of this growth is technological progress, and to some degree technical change, whereas scale efficiency change contributes negatively to productivity growth. Moreover, foreign banks are found to have the highest productivity growth.