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Technology and the (Re)Location of Financial Activity a European Perspective

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Author Info

  • I.P.P. van Lelyveld
  • M.A. Donker

Abstract

Technological change, especially in information technology, has brought profound changes to services sectors like the financial sector. Two decades ago, closed-system communications methods like faxing had yet to break through. Presently the internet, with its open architecture, makes new ways of communication and production possible, changing the way banks operate. Some even argue that this makes geographical constraints irrelevant, i.e. "Geography doesn't matter". To date, however, working internet-applications are few and far between, especially in Europe. Empirical validation of the, on theoretical grounds attractive, notion that distance is quickly becoming irrelevant, is thus very difficult. We therefore turn to the natural experiment of changes in other communications-methods like faxing and (cellular) phones in the past two decades. Use of these methods has also been increasing substantially. We analyse, using mainly non-parametric methods, the development of the distribution of production of, and employment in, financial services in 117 regions in Europe. We consider the possible effects of home markets, centre-periphery effects, and - changes in - regulatory environment. We find that, except for some minor exceptions, there have not (yet) been large shifts in production and employment in financial services. If there are discernible effects, these tend to point in the opposite direction: increased concentration makes distance even more important. This might lead to the conclusion that a measurable effect of the internet, as a centrifugal force on the location of financial services, is still some way off.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Directorate Supervision in its series Research Series Supervision (discontinued) with number 42.

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Date of creation: Dec 2001
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Handle: RePEc:dnb:ressup:42

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Related research

Keywords: technology; Internet; location; financial services; banking and insurance.;

References

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  1. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  2. Keller, Wolfgang, 2001. "Geographic Localization of International Technology Diffusion," CEPR Discussion Papers 2706, C.E.P.R. Discussion Papers.
  3. Claudia M. Buch, 1999. "Why Do Banks Go Abroad? � Evidence from German Data," Kiel Working Papers 948, Kiel Institute for the World Economy.
  4. Fujita, Masahisa & Thisse, Jacques-Francois, 1996. "Economics of Agglomeration," Journal of the Japanese and International Economies, Elsevier, vol. 10(4), pages 339-378, December.
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  9. Towey, Richard E, 1974. "Money Creation and the Theory of the Banking Firm," Journal of Finance, American Finance Association, vol. 29(1), pages 57-72, March.
  10. repec:fth:eeccco:141 is not listed on IDEAS
  11. Pagano, Marco, 1989. "Trading Volume and Asset Liquidity," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 255-74, May.
  12. Martin Hallet, 2000. "Regional specialisation and concentration in the EU," European Economy - Economic Papers 141, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  13. Marius Brülhart, 2001. "Evolving geographical concentration of European manufacturing industries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 137(2), pages 215-243, June.
  14. Martin, Ron, 1999. "The New 'Geographical Turn' in Economics: Some Critical Reflections," Cambridge Journal of Economics, Oxford University Press, vol. 23(1), pages 65-91, January.
  15. Krugman, Paul, 1991. "History and Industry Location: The Case of the Manufacturing Belt," American Economic Review, American Economic Association, vol. 81(2), pages 80-83, May.
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Cited by:
  1. Prast, H.M. & Lelyveld, I. van, 2004. "New architectures in the regulation and supervision of financial markets and institutions: The Netherlands," Open Access publications from Tilburg University urn:nbn:nl:ui:12-4296154, Tilburg University.
  2. J.W.B. Bos, 2003. "Improving Market Power Tests: Does it matter for the Dutch Banking Market?," Research Series Supervision (discontinued) 56, Netherlands Central Bank, Directorate Supervision.

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