Tailoring the DEA Framework for Emerging Markets: Evidence from the Banking Sectors of Serbia and Montenegro
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Abstract
The aim of this research is to analyze the relative efficiency and productivity changes of the banking sectors in the Republic of Serbia and Montenegro in the period from 2010 to 2024, using the non-parametric DEA (Data Envelopment Analysis) method on unbalanced panel data. Given the fundamental differences between these two markets, the research applies methodologically adapted specifications: the profitability approach for Montenegro and the intermediary approach for Serbia. The basic results of the BCC DEA model are additionally deepened by the super-efficiency model for more precise ranking, as well as by the Malmquist index to monitor productivity dynamics over time. The results indicate that in Montenegro, most banks record high technical efficiency in capital management, but this apparent success masks serious structural problems, given that a significant number of banks recorded a regression in overall productivity (Malmquist index < 1). On the other hand, the Serbian market records stable productivity growth in more than 85% of the banks in the sample, with the largest systemic banks continuously dominating. It is concluded that the selection of inputs and outputs must be market-driven, highlighting that a customized methodological framework is essential to adequately address the structural specificities and operational differences within the sectors.
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