A note on efficiency and productivity growth in the Korean Banking Industry, 1992-2002

In this paper we present estimates of Korean bank inefficiency and productivity change for the period 1992-2002 that are derived from the directional technology distance function. Our method controls for loan losses that are an undesirable by-product arising from the production of loans and allows the aggregation of individual bank inefficiency and productivity growth to the industry level. Our findings indicate that technical progress during the period was more than enough to offset efficiency declines so that the banking industry experienced productivity growth.