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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. 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.
  2. Jess Gaspar & Edward L. Glaeser, 1996. "Information Technology and the Future of Cities," Harvard Institute of Economic Research Working Papers 1756, Harvard - Institute of Economic Research.
  3. Rauch James E., 1993. "Productivity Gains from Geographic Concentration of Human Capital: Evidence from the Cities," Journal of Urban Economics, Elsevier, vol. 34(3), pages 380-400, November.
  4. Wolfgang Keller, 2002. "Geographic Localization of International Technology Diffusion," American Economic Review, American Economic Association, vol. 92(1), pages 120-142, March.
  5. Pagano, Marco, 1986. "Trading Volume and Asset Liquidity," CEPR Discussion Papers 142, C.E.P.R. Discussion Papers.
  6. Fujita, Masahisa & Thisse, Jacques-François, 1996. "Economics of Agglomeration," CEPR Discussion Papers 1344, C.E.P.R. Discussion Papers.
  7. 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.
  8. 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.
  9. Glaeser, E.L. & Ades, A.F., 1993. "Trade and Circuses: Explaining Urban Giants," Harvard Institute of Economic Research Working Papers 1646, Harvard - Institute of Economic Research.
  10. Claudia M. Buch, 1999. "Why Do Banks Go Abroad? � Evidence from German Data," Kiel Working Papers 948, Kiel Institute for the World Economy.
  11. Gehrig, Thomas, 1998. "Cities and the Geography of Financial Centres," CEPR Discussion Papers 1894, C.E.P.R. Discussion Papers.
  12. Marius Brülhart, 2001. "Evolving geographical concentration of European manufacturing industries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 137(2), pages 215-243, June.
  13. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  14. repec:fth:eeccco:141 is not listed on IDEAS
  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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