The effect of privatization on efficiency: The case of Mexico's commercial banks

Privatization of state owned enterprises has been under investigation from both theoretical and empirical approaches for a long time. Developed countries have been the pioneers in designing privatization policies. Many developing countries followed suit in privatization their state owned enterprises part of the World bank's and other international organizations requirements to granting them financial aid and technical support.; Most researchers believe that privatization is initiated to achieve pure efficiency objectives. Most empirical work has been concentrated in testing the efficiency objective of privatization in developed countries. Few studies have tested the efficiency objective of privatization in developing countries. Developed and developing countries have different market structures and economic environments that might suggest different effects of privatization.; In this dissertation, the effect of privatization on efficiency is measured in a developing country. More specifically, it attempts to examine the effect of privatization on technical efficiency in Mexico's banking sector. Mexico nationalized its banking sector in 1982 and re-privatized it in the early 1990s. In this dissertation, the analysis is carried out on a bank-to bank analysis. Each bank included in this dissertation will be analyzed independently to determine the effect of privatization on the performance of the bank.; There are several approaches that appear in the literature that examines the efficiency of an individual firm. The approaches applied are either parametric or non-parametric. In this dissertation, the non-parametric (Data Envelopment Analysis) is used to measure the technical efficiency of Mexican banks. Data Envelopment Analysis (DEA) allows efficiency to be measured without having to specify either the form of the production function or the weights of the different inputs and outputs used by the firm, giving it an advantage over the parametric approaches.