Measuring Economies of Scale and Scope for the Argentine Bank Industry : A Comparative Analysis, 1996-1999

This paper examines the economies of scale and scope among Argentina's commercial banksfollowing the financial and monetary reforms of the early 1990s by using cross-sectional data of allcommercial banks operating in Argentina in years 1996 and 1999. The paper focuses on three well-known measures of scale and scope efficiency; namely, the Ray Scale Economy Measure (Baumol, Panzar, and Willig, 1982), the Expansion Path Scale Economy Measure (Berger, Hanweck and Humphrey, 1987), and the Expansion Path Subadditivity Measure (Berger et al., 1987). A translog cost function and N-1 input share equations are jointly estimated utilizing SUR. Then, coefficient estimates of the cost function are used to construct the efficiency measures for years 1996 and 1999. Estimation results reveal the existence of significant levels of scale economies in both years, although increasing returns turned out to be consistently lower in year 1999, indicating a shift over time towards higher efficiency. On the other hand, there is also evidence of cost superadditivity in both periods, although these measures become statistically significant only for year 1996. Overall, levels of output inefficiency found in this study represent more than ten percent of banking costs, (i.e. two or three times the levels encountered in studies of welldeveloped financial markets like the US banking sector), which raises a question in terms of the sustainability of at least some Argentine banks operating currently