All
praise is due to Allah, the most gracious the most kind, the master of Day of
Judgment, and may Allah’s peace and blessing be upon the Last Prophet Muhammad
(S.A.W) and all those who follow the path of righteousness until the Last Day”.
Before
going further, I will like to first and foremost define what a convergence…….? This is the type of banking integration in regards to the price
law, in which all the banks must charge the
same price for similar products; in order to achieved there aims,
objectives. Furthermore, convergent in charge [cost] effectiveness of bank is
required as big difference in banking cost restrict the banking prices after
converging.
Our today finding of the convergent between
and conventional Islamic banking system of banking, which I have there is
convergent small different between them. Here are evident from the pure base of
“Steady state efficiency and efficiency convergence”. The conditional 𝛽-convergence
model is estimated from that we will be using of the technique with Islamic
bank move or change direction [Shift]
and slope dummies.
1)
OLS
estimation
2)
RPM
estimation
3)
Classification
trees
Before
going further let me give some detail on convergence efficiency, the efficiency
convergence Efficiency convergence has been inspected in the circumstance of
the economic unions, for instance the European Union ( B. Căpraru
and Andries M. A. 2014) ; (Casu, B. and C. Giradone 2010) and the USA (Fung 2006). Indeed In these
paper follows the (Fung 2006)
format, who acclimatizes the models of real revenue development of (Barro, R. and X. Sala-I-Martin 1991). Therefore we denote
𝛽-convergence
and 𝜎-convergence.
As a result, we assumes 𝛽-convergence in its simple form. With The reason that banks with
lower efficiency have faster growth rates than firms with higher efficiency
whereas 𝜎-convergence
to judge whether the dispersal in effectiveness levels reduces over the period.
Meanwhile, as are interested to known whether there are changes in convergence
behavior amongst Islamic and conventional system of banking, we then use the conditional
convergence models. The Steady state efficiencies strength differ for the
condition that banks knowledge or skill not the same behavioral and technical
circumstances, and we test whether this is the applied to both Islamic and conventional banking
system.
)-
From
above procedure, the country dummies (COUNTRY) and the year, dummies (YEAR) are consist of account aimed at
different in financial regimes and technology transversely nations and time.
Therefore, the worth of the parameter 𝛽 signifies divergence (if 𝛽<0) or convergence (if 𝛽>0) in banking efficiency. The
greater is [𝛽] beforehand the greater is the speed of convergence or
divergence.
In furthermore if 𝛾 ≠ 0 then Islamic & conventional
banking are converging on diverse steady state effectiveness levels; if 𝛿 ≠ 0 at this
juncture Islamic and conventional system of banking have various convergence
rates. Point to be Noted that the (𝛽-test) of convergence has its
restrictions. The circumstance for convergence (𝛽<0) implied
that those with low preliminary standards grow (in effectiveness) faster, the
rest of them with high commencing
values. Nonetheless, this may perhaps lead to low-starting-efficiency the banks
really surpassing high-starting-efficiency banks and therefore to the notion of
convergence. Besides it provides no information around the development of
dispersal in effectiveness over time.
The
restrictions of beta 𝛽-convergence are emphasis by the 𝜎-convergence
test which is founded on the dispersal of a bank’s effectiveness about the
sector average in a given time period. The normal 𝜎-
convergence exemplary can be modified to examine how speedily each of this
bank’s efficiency level (in a given year) is converging to the average
effectiveness level across all of the banks in a given period year. Moreover,
the worth of the parameter 𝜎 signifies divergence (if 𝜎>0) or convergence (if 𝜎<0) in banking efficiency; greater is [𝜎]
then and there the greater is the speed of divergence or convergence. It should
be noted that beta 𝛽-convergence is a needed however is not an enough or satisfactory
condition for 𝜎-convergence to take place (Mamatzakis, E., C. Staikouras and A. Koutsomanoli-Filippaki 2008). On the other hand
for beta [𝛽] convergence to measure actual convergence (rather than becoming
worse towards the mean) it require coincide with important 𝜎-convergence (Fung, 'Scale
economies, X-efficiency, and convergence of productivity among bank holding
companies'. 2006).
Firstly,
OLS is practical in the first instance to derive approximations of both
absolute and restricted beta 𝛽-convergence the calculations has been done using above formula; I
will use the result and explain or estimated intercept in the absolute
convergence model proposes that conventional system of banking are converging on a steady state
efficiency worth of 0.947. The worth of beta 𝛽 is -0.302 and
is consequently comparable with approximations for the USA and EU. While the
dummy variable represent the type of bank is encompassed, we find that
conventional system of banking are
converging to a greater rate of effectiveness than Islamic system of banking in
the steady state (0.950 compared to 0.939 holding all else constant), and that
this is a significant different.
The value of beta [𝛽]
remains mainly unchanged (by the side of -0.295) and although there is no much
or important difference between conventional and Islamic system of banking in
terms of convergence. Nonetheless, when the country and time are taken into
account of the both steady state effectiveness and efficiency convergence rates
vary considerably between the types of banking system, but then again the
changes are quite small. Less take an example, holding all else constant, the
characteristic of conventional banking system has steady state effectiveness of
0.962 and converges on it at a rate of -0.268, where the typical Islamic system
of banking has a steady state effectiveness of 0.960 and the converges on it is
at the rate of -0.330.
Secondly,
RPM estimation For us to capture the improved the irreplaceable conditions in
which all bank operates, as we now use
the random parameter model to approximate the steady state effectiveness and
convergence rate for each banking system. Outcomes are the average steady state
effectiveness is 0.911 and this does not differ significantly between Islamic
and conventional system of banking. The average convergence rate is -0.544 and
again, this does not differ significantly between Islamic and conventional system
of banking.
Consequently,
once the individual conditions of each bank are permitted for (i.e. each bank
is permitted to have its own steady state efficiency and convergence rate)
there appears to be no significant difference between Islamic and conventional
system of banking. In the priori clubs (Islamic and conventional system
of banking) are not confirmed empirically by the statistics [data] and model.
This might be for the reason that the differences between types of banking
system differ by country and with only 388 banks we have inadequate degrees of
freedom to explore this further with parametric methods.
Thirdly
“Classification trees, to account for a
subject or problem of degrees of freedom as we go
toward the Classification trees to tool down into the convergence rate and steady
state effectiveness of the estimated for
each system of banking to inspect whether there are many banking system which
behave likewise within themselves. Therefore we not undertake that the changes will
be exactly between conventional and Islamic system of banking regards to
convergence; it might be the case that in some countries, conditions are such
that Islamic and conventional system of banking behave likewise while in others
perspective that is not the circumstance [case]”.
In
conclusion From above results indicate, there not a stable relationship between
rapidity of convergence and the system of banking kind; there in particular
nation’s Islamic system of banking exhibition larger rapidity of convergence
than conventional system of banking; in addition nations observed the converse. “The Islamic system of banking belong to a high
convergence/low steady state club, whereas the low convergence or high steady
state club is occupied by the conventional system of banking. Pakistan is a
unique out of the few nations that have chosen in the previous for a pure
Islamic system banking model, which was consequently abandoned for the reason
that the execution difficulties, and the nation now implements a double-banking
system.” (Sala-I-Martin 1996).
Bibliography
B. Căpraru and Andries M. A. 2014.
'Convergence of banking efficiency in emerging markets: The Central and
Eastern European Countries' experience.' Emerging Markets Finance and Trade.
Barro, R. and X.
Sala-I-Martin. 1991. "'Convergence across states and regions." regions.'
Brookings Papers on Economic Activity 1: 107-182.
Casu, B. and C.
Giradone. 2010. 'Integration and effcieincy convergence in EU banking
markets. Omega.
Fung, M. K. 2006.
"'Scale economies, X-efficiency, and convergence of productivity among
bank holding companies." Journal of Banking and Finance 30(10):
2857-2874.
Fung, M. K. 2006.
"'Scale economies, X-efficiency, and convergence of productivity among
bank holding companies'." Journal of Banking and Finance 30(10):
2857-2874.
Mamatzakis, E.,
C. Staikouras and A. Koutsomanoli-Filippaki. 2008. "'Bank efficiency in
the new European Union member states: Is there convergence?'." International
Review of Financial Analysis 17(5): 1156-1172.
Sala-I-Martin, X.
1996. "'The classical approach to convergence analysis.'." Economic
Journal 106(437): 1019-1036.
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