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Impact of trade area environment on bank's comparative advantages

[journal article]

Hubrecht-Deville, Aude; Leleu, Hervé

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Abstract This paper analyzes the relationship between the comparative advantages of bank branches and the trade area environment. Bank branches are points of sale whose trade environment influences their activities and performance. Comparative advantages are defined, for each output mix, by the strict dominance of a production technology in a specific trade area over the production technologies of other environments. Using Shephard’s output distance functions on a sample of 728 bank branches, we compare the production technologies for different output mixes and different trade environments. We show that none of the production technologies strictly dominates the others and none of them is strictly dominated. Therefore, each trade area benefits from comparative advantages that we try to highlight. Finally, we evaluate the performance of the central banks regarding their ability to provide the right incentives on output mixes to their bank branches so that the latter may benefit from their comparative advantages.
Classification Economic Sectors; Management Science
Free Keywords output distance function; comparative advantage; bank branches
Document language English
Publication Year 2008
Page/Pages p. 2209-2219
Journal Applied Economics, 40 (2008) 17
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)