Technology Gap and Managerial Efficiency: A Comparison between Islamic and Conventional Banks in MENA
- 16 Downloads
In this paper, we compare the technology gap and managerial efficiency between Islamic banks and conventional banks in 15 MENA countries. Using unbalanced panel data that covers the period 2002–2014, we estimate a stochastic meta cost frontier and find evidence of important technology heterogeneity in the region’s banking systems. It appears that the inefficiency caused by non-optimal use of the most advanced banking technology is much more important than managerial inefficiency. The technology gap is higher in Islamic banks and foreign banks than conventional domestic banks. We also investigate the determinants of these cost inefficiencies. Our results show that online banking is an important driver that can reduce the technology gap across banks and improve managerial efficiency, while size proves to have a negative impact on technology gap. Bank concentration has a positive impact on managerial efficiency restricted to Islamic banks.
KeywordsBanking efficiency Meta frontier Cost function Technology gap
JEL ClassificationsG21 D22 D24 P52
Compliance with ethical standards
Conflict of interest
The authors declare that they have no conflict of interest.
- Al Jarrah I, Molyneux P (2004) Efficiency in Arab banking. In: Iqbal M and Wilson R (eds) Islamic Perspectives on Wealth Creation., (Edinburg University Press, UK 2004)Google Scholar
- Ariss RT (2007) On the rise of Islamic banking among giant commercial banks: A performance and efficiency analysis. J Int Bus Econ 7(1):70–83Google Scholar
- Ben Naceur S, Ben Khediri H, Casu B (2011) What drives the performance of selected MENA banks? A meta frontier analysis, IMF, WP/11/34, International Monetary Fund, Washington, D.C.Google Scholar
- Diwan I, Schiffbauer M (2018) Private banking and crony capitalism in Egypt. Business and Politics, 20:1–20Google Scholar
- Johnes J, Izzeldin M, Pappa V (2014) A comparison of performance of Islamic and conventional banks. J Econ Behav Organ. 103:S93–S107Google Scholar
- Jondrow J, Lovell CAK, Materov IS, Schmidt P (1982) On the estimation of technical inefficiency in the stochastic frontier production function model. J Econom 23:269–274Google Scholar