Identifying productivity change in Botswana’s financial institutions: an application of Malmquist productivity indices

The productivity and efficiency of the financial sector is pivotal to the attainment of economic growth and development in developed and developing economies alike, and is of particular interest in the wake of financial sector reform and restructuring. This study applies the Malmquist productivity index to measure and decompose the total factor productivity change of ten financial institutions in Botswana in its post reform era, covering the period 2001-2006, into a ‘catching up’ or efficiency change, and a ‘frontier shift’ or technological change. The robustness and sensitivity of the empirical results presented is assessed by comparing outcomes from different input and output combinations derived from using the value added, intermediation and operating approaches. The empirical results indicate a loss or little productivity gain in Botswana’s financial institutions, arising mainly from technological regress. Policy implications from this are highlighted in the paper.