Efficiency, innovation and competition: evidence from Vietnam, China and India

Thanh Pham Thien Nguyen*, Son Hong Nghiem, Eduardo Roca, Parmendra Sharma

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

24 Citations (Scopus)

Abstract

Given a number of common features in both the economy and banking markets across Vietnam, China and India, this study investigates the comparative levels of efficiency, innovation and competition and then examines the effect of competition on innovation of banks in the three countries over the period 1995–2011. Applying for the first time a recently developed stochastic meta-frontier framework to the banking sector, this study finds that Indian banks are the most cost-efficient, followed by Chinese banks and Vietnamese banks. Indian banks are also more innovative in reducing the operating costs compared to Chinese and Vietnamese banks. Using the Lerner index, the banking markets of India and Vietnam are found to be more competitive than that of China. The relationship between competition and cost-reducing innovation follows an inverse U-shape curve, which is consistent with the literature. This study also finds that the optimal Lerner index to achieve the greatest innovation in reducing operating costs is 55 %. Based on the results of the Lerner index, this study recommends that to improve cost-reducing innovation, policy makers should promote bank competition in all the three countries, but to a greater extent in China than in Vietnam and India.

Original languageEnglish
Pages (from-to)1235-1259
Number of pages25
JournalEmpirical Economics
Volume51
Issue number3
DOIs
Publication statusPublished - 1 Nov 2016
Externally publishedYes

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