The Economics of Financial Services in Emerging Markets: Measuring the Output of the Banking and Insurance Industries

340 Pages·2022·4.172 MB·English

by  Bhagirath Prakash Baria

The Economics of Financial
Services in Emerging Markets
Any enquiry into the nature, performance, role, demerits, growth, efficiency
or other aspects of financial services such as banking and insurance activities,
requires rigorous estimates of their economic output, that is, the economic
contributions made by these firms, as well as by the industries as a whole.
Accordingly, this book condenses several theoretical, methodological,
empirical and philosophical issues in conceptualizing, measuring and empirically
operationalizing the economic output of the banking and insurance industries.
The analytical focus is on both Global and Emerging Markets perspectives. The
book synthesizes applied and conceptual evidence to locate the chosen theme’s
analytical patterns, consensus and disagreements. The selected subject matter
is studied within the firm-level and aggregate settings, bringing literature of
varied scopes together. Contributions from various international academics,
practitioners and policymakers further enrich the narrative.
The book concludes with data-driven case studies that analyse the extent to
which the critical performance parameters of the banking and insurance industries
in the BRIICS economies – including estimation of aggregate industry-level
partial factor productivities, total factor productivity, technical efficiency and
returns to scale – vary concerning alternate measures of their output. The present
work also provides a brief note on the inputs measurement dimension, following
which there is a discussion on the limitations, future scope and conclusions.
This work will be valuable for researchers and policymakers undertaking
performance analyses related to banking and insurance activities. It shall provide
them with the examination of a plethora of analytical options and related issues
on the theory and praxis of output measurement, all finely organized into one
single volume.
Bhagirath Prakash Baria is Assistant Professor at the Department of Banking
and Insurance, Faculty of Commerce, The Maharaja Sayajirao University of
Baroda, India. The broad areas of his interest include macroeconomics of banking,
agricultural productivity and performance analysis of banking and insurance
industries. The author strongly believes in pluralism in both teaching and research.
He has a masters’ degree in business economics with two Gold Medals, has
published in several reputed national and international journals, won a Young
Researcher Award, founded a non-profit educational initiative called The Cafe
Economics (TCE), and is pursuing a PhD in the area of International Finance.
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For more information about this series, please visit: www.routledge.com/
series/BMIF
The Economics of Financial
Services in Emerging Markets
Measuring the Output of the Banking and
Insurance Industries
Bhagirath Prakash Baria
First published 2023
by Routledge
4 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
605 Third Avenue, New York, NY 10158
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2023 Bhagirath Prakash Baria
The right of Bhagirath Prakash Baria to be identified as author of this work
has been asserted in accordance with sections 77 and 78 of the Copyright,
Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or
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any information storage or retrieval system, without permission in writing
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registered trademarks and are used only for identification and explanation
without intent to infringe.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Names: Baria, Bhagirath Prakash, author.
Title: The economics of financial services in emerging markets : measuring
the output of the banking and insurance industries / Bhagirath Prakash Baria.
Description: Abingdon, Oxon ; New York, NY : Routledge, 2023. | Series:
Banking, money and international finance | Includes bibliographical
references and index.
Identifiers: LCCN 2022027726 (print) | LCCN 2022027727 (ebook) |
ISBN 9780367712136 (hardback) | ISBN 9780367712143 (paperback) |
ISBN 9781003149828 (ebook)
Subjects: LCSH: Financial services industry—Developing countries. |
Banks and banking—Developing countries. | Insurance—Developing
countries.
Classification: LCC HG195 .B367 2023 (print) | LCC HG195 (ebook) |
DDC 332.109172/4—dc23/eng/20220616
LC record available at https://lccn.loc.gov/2022027726
LC ebook record available at https://lccn.loc.gov/2022027727
ISBN: 978-0-367-71213-6 (hbk)
ISBN: 978-0-367-71214-3 (pbk)
ISBN: 978-1-003-14982-8 (ebk)
DOI: 10.4324/9781003149828
Typeset in Bembo
by Apex CoVantage, LLC
To,
Maa Saraswati
Prof. K. Shanmugan
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Contents
Acknowledgements xiv
Contributors xvi
Foreword xvii
Preface xix
1 Setting the analytical background 1
1.1. Background and introduction 1
1.2. T heory of output measurement: features of an ideal output
measure for banking and insurance activities 3
Product-mix representativeness 4
Quality-adjusted measure 4
Robustness to regulatory interventions 4
Endogenous to the production function 5
Methodological robustness 5
Availability of multiple proxies 6
Maximisation criterion 6
Based on an output specification approach rather than ad hoc 6
Reflect the size of the firm or the industry 7
High correlation with other possible alternatives 7
Existence of an optimal corresponding price index 7
Ability to handle the multi-output nature of banking
and insurance activities 8
Stable and rigid definition 8
Fully endogenous to the firm 9
Unitary influence factor 9
1.3. Final remarks 9
Notes 10
References 11
viii Contents
PART I
Survey of evidences: theoretical and empirical issues 13
2 Qualitative and quantitative aspects of the survey
of literature 15
2.1. Sample versus population dimensions of literature survey 15
2.2. Review strategy 16
2.3. Quantitative summary of the selected sample of studies 17
2.4. Problems in the purposive selection of studies 23
2.5. Background on further sections 24
Notes 25
References 26
3 Review of evidence on banking output measurement:
global perspective 27
3.1. Introduction 27
3.2. Empirical sensitivity of banking performance estimates
to alternative outputs 27
3.3. Approaches to output specification in the banking literature 30
Production approach 32
Intermediation approach 34
Asset approach 36
Value-added approach 37
User cost approach 37
Index numbers approach 38
3.4. Output measurement in the banking literature 39
Loan outputs 39
Deposit outputs 43
Asset output 48
Investment output 48
Income and off-balance-sheet output 51
FISIM output 53
National income accounts and banking output 54
3.5. Thematic issues in banking output measurement 55
Deflation of banking output 55
Stock versus flow dimensions in output measurement 58
Issues in economic aggregation 58
Some econometric dimensions in the literature 59
Monetary policy and the banking production function 60
Other issues 61
Appendix: Evolution of banking output measurement in the extant
wisdom from 1950 to 2022 63
Notes 90
References 93
Contents ix
4 Review of evidence on insurance output
measurement: global perspective 110
4.1. Introduction 110
4.2. Empirical sensitivity of insurance performance estimates
to alternative outputs 110
4.3. Approaches to output specification in the insurance
literature 111
Production approach 111
Intermediation approach 112
Value-added approach 112
National income approach 113
4.4. Output measurement in the insurance literature 113
Life versus nonlife insurance output 113
Premium output 114
Claims and loss output 116
Investment and financial assets output 119
Reserves as output 121
Income output 121
National income output of insurance 123
4.5. Thematic issues in insurance output measurement 126
Market structure, organisational structure and performance
estimation 126
Output mix and output measures 129
Regulation and output measurement 129
Insurance output measurement in advanced versus emerging
economies 130
Deflation of nominal output in insurance 130
Taxation and insurance output measurement 131
Appendix: Evolution of insurance output measurement in the extant
wisdom from 1980 to 2022 132
Notes 149
References 151
5 Extended notes on the banking and insurance output
measurement problem 162
5.1. Summarising the literature survey 162
5.2. Extended notes 162
Synthesising the concept and measure of outputs 162
Stock versus flow outputs 163
Nominal versus real outputs 163
Single versus multiple outputs 164
National income versus economic approaches 164
Dual nature of output specification problem 165