Bank privatization and productivity: Evidence for Brazil

Over the last decade, the Brazilian banking industry has undergone major and deep transformations with several privatizations of state-owned banks, mergers and acquisitions, closing down of troubled banks, entry by foreign banks, etc. The purpose of this paper is to evaluate the impacts of these changes in banking total factor productivity. We first obtain measures of bank-level productivity by employing the techniques due to Levinsohn and Petrin [Levinsohn, J., Petrin, A., 2003. Estimating production functions using inputs to control for unobservables. Review of Economic Studies 70, 317-342]. We then relate such measures to a set of bank characteristics. Our main results indicate that state-owned banks are less productive than their private peers, and that privatization has increased productivity. (c) 2005 Elsevier B.V. All rights reserved.