An empirical study of bank efficiencies and technology gaps in european banking

This paper extends the established literature on modeling the cost structures of Europe's banking sectors by combining the Fourier flexible cost function with time-varying technical efficiency (TE) under the framework of the meta-frontier, as proposed by Battese etal. (Journal of Productivity Analysis, Vol. 21 (2004), pp. 91-103) and O'Donnell etal. (Empirical Economics, Vol. 34 (2008), pp. 231-255). We find multiple technologies prevail in the nine sample countries, justifying the use of the meta-cost frontier. Measures TE and technology gap ratios are found to be positively correlated with each other, implying that a relatively technically efficient bank is possibly technologically efficient and vice versa.