Which Element Bank Total Factor Productivity Is More Representative: Technological Progress or Efficiency Change?

The article employs the Malmquist Productivity Index (MPI) method to assess the impact of technological change on the obtained total factor productivity (TFP) of Malaysian banks during the period 1998–2008. The preferred methodology enables us to isolate efforts to catch up to the frontier (efficiency change) from shifts in the frontier (technological change). The empirical findings suggest that the Malaysian banking sector has exhibited a marginal TFP progress attributed mainly to the increase in efficiency. During the period under study, the decline in technological change has adverse impact on the TFP of both domestic and foreign banks.