Mathematical Modelling of Malmquist TFP Index as applicable in Banks: A Study of its Origin and Development

Abstract

Productivity of any organisation or Decision making unit (DMU) has always been the topic of acute interest for their managers. Over years measurement of productivity has been a major concern of researchers in India and abroad. Several techniques have been developed and applied in various sectors to see their effectiveness. Popular among these are Regression, input-output analysis, Data envelopment analysis etc. the further advancements in these techniques with the purpose of improving the results has given origin to a new mathematical framework called 'Malmquist Productivity Index'. The present paper endeavours to examine the origin of MPI and discuss the mathematical modelling along with its basic decompositions. It has been observed that MPI has been widely used abroad to measure productivity of banks. So, this paper also attempts to review the existing literature on its application on banking sector. Keywords-bank productivity, data envelopment analysis, malmquist productivity index, total factor productivity.