Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/80852 
Year of Publication: 
2012
Series/Report no.: 
KOF Working Papers No. 296
Publisher: 
ETH Zurich, KOF Swiss Economic Institute, Zurich
Abstract: 
This paper uses a panel data set of microfinance institutions (MFI) across the world to compare several identification strategies of cost efficiency and economies of scale. Concretely, we contrast the non-parametric Data Envelopment Analysis (DEA) with the Stochastic Frontier Analysis (SFA) and a distribution-free identification based on time-invariant heterogeneity estimates. Furthermore, we analyze differences of production functions across regions and investigate the relevance of accounting for unobserved heterogeneity across countries. The results suggest that efficiency rankings of MFIs are robust across identification strategies, but highlight the relevance of accounting for unobserved heterogeneity. We further find substantial economies of scale for a pure financial production process. However, accounting for the multi-dimensional production process of MFIs by including a measure of outreach lowers the estimated extent of economies of scale for the parametric estimations, suggesting that producing outreach creates high transaction costs and requires exploitation of local knowledge.
Subjects: 
Microfinance
Cost Efficiency
Economies of Scale
SFA
DEA
DFA
Unobserved Heterogeneity
Outreach
JEL: 
D24
G21
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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