Impact of Banking Sector Reforms on Profit Efficiency of Commercial Banks of Pakistan
Author: Samina Sabir

This study examines the impact of banking sector reforms on the structure of banking sector and profit efficiency of commercial banks in Pakistan by using data from 1990-2009. This study also explores the impact of financial intermediation development on regional per capita income and income inequality through human capital development. We use dynamic generalized method of moment (GMM) to Panzar and Rosse (1987) total revenue equation. We find that banking sector in Pakistan is monopolistically competitive. Moreover we estimate the alternative profit function by using DFA and panel models. Results of efficiency indicate that banks are operating inside the efficiency frontier that also shows the misallocation of financial resources. Furthermore, correlates of efficiency are determined by considering bank specific, macroeconomic variables and banking reforms index to check the efficiency differences among banks. We estimate Tobit regression by employing maximum likelihood method. There exists a positive relation between banking sector reforms and profit efficiency. This study is unique in the sense that it examines the impact of financial intermediation development on per capita income and income inequality across of Pakistan over the period 2001-2009. Dynamic panel data techniques are used to resolve the problem of endogeneity created by financial intermediation variable in the model. Results report that both financial intermediation development and human capital development have positive and significant impact on per capita income of regions. We use Gini coefficient to measure income inequality across provinces of Pakistan. We also test the Kuznets Hypothesis and find inverted U-shaped relationship between financial intermediation and income inequality that is consistent with the study of Greenwood and Jovanovic (1990). Supervisors: Dr. Abdul Qayyum Dr. Musleh ud Din

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Keywords : Banking Sector Reforms, Commercial Banks, Pakistan, Profit Efficiency
Supervisor: Abdul Qayyum
Cosupervisor: Musleh ud Din

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