A Note on Productivity Change in European Co-operative Banks: The Luenberger Indicator Approach

This aggregate efficiency indicator is referred to as a structural efficiency indicator, and the
aggregate Luenberger productivity indicator (AL) is constructed as follows:⁹

Equation [8] allows similar decompositions to equation [6].

4. Data and Results

We use the dataset on European co-operative banks of Molyneux and Williams
(2005). Table 1 shows the number of cooperative banks in the sample by country and across
1996 to 2003. Clearly, the sample is dominated by observations of German and Italian co-
operative banks. Nevertheless, it must be noted that co-operative banking sectors have been
consolidated into a large entity in countries like the Netherlands.

Table 1: Number of Co-operative Banks & Observations: by Country, 1996-2003

Source: BankScope.

We construct aggregate efficiency and productivity measures for co-operative banks in
ten EU countries. Banks are assumed to produce four outputs: (i) total customer loans, (ii)
interbank loans, (iii) securities, and (iv) off-balance-sheet items, from two inputs: (v) fixed
assets and (vi) variable cost. The descriptive statistics are shown in Table 2.

⁹ See Fare and Primont (2003) and Fare and Grosskopf (2004) for discussion of the aggregation of the
Luenberger productivity indicator.

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