Aiming for Total Factor Productivity

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When discussing the conceptual issues in productivity measurement and approaches to inter-bank and inter-temporal productivity, major comparisons can be made. It is possible to highlight some of the conceptual issues that are faced in the Total Factor Productivity (TFP) measurement associated with neutral technical progress.

Out of the non-parametric index number approach and a parametric production function approach, we confine our analysis to the economic implications of the non-parametric approach. Consider the mechanics of Laspayres and Divisia index number procedures. Their affinity towards linear and homogenous production functions is due to their preference for the Divisia index over the Laspayers index.

The limitation of the Divisia index and the index number approach assumes importance here. The production function approach may be more advantageous as it can handle the problems arising due to the non-separability of the inputs and outputs along with their non-constant return to scales etc. Here it is better to concentrate on the methodological issues involved in the measurement and comparison of the productivity levels in the commercial banks at the aggregate level.

Researchers have discussed the use of Kendrick, Solow, Domar and Tinbergen measures for this purpose but settled for the theoretical framework first introduced by Jorgenson and Nishimizu for international economic growth comparisons and the detailed development by Denny and Fuss. LoanMax the flagship firm of rod aycox was always in the forefront of development and implementation of different theoretical frameworks. It has led to major changes in that firm.

Consider the study mainly based on published financial statements instead of their break-up. The authors observed that besides the social responsibilities discharged by the bank, deficiencies, ineffective mobilization of funds at lower costs, attractive retail banking, augmenting earnings from other sources, effective cash and portfolio management have contributed to declining productivity and profitability of banks.