Bank efficiency determinant: Evidence from the gulf cooperation council countries

Using data from 2007 to 2014, we investigate the effects of inflation, unemployment rate and GDP per capita growth on bank efficiency for the Gulf Cooperation Council countries in an unbalanced panel consisting of 75 banks and 415 observations. Applying stochastic frontier estimation procedures, we compute cost efficiency taking account of both time and country effects directly. In second-stage regressions, we use the efficiency measures to investigate the influence of country risk variables and concentration ratio applying Generalized Method of Moments technique with respect to the impact of political risk, credit ratings and debt in default. The finding suggests that banks in countries with low country risk, and low concentration tend to perform more efficiently. Furthermore, a negative but insignificant relationship between total assets and bank efficiency reflects the fact that larger banks in developing countries suffer from diseconomies of scale.