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Estimating Scale and Scope Economies with Fourier Flexible Functional Form – Evidence from Taiwan's Banking Industry

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  • Tai‐Hsin Huang
  • Mei‐Hui Wang

Abstract

In this study the scale and scope economies for Taiwan's banking sector using panel data from 22 domestic banks for the period 1981–1997 is investigated quantitatively using both a Fourier flexible functional form, first proposed by Gallant (1981, 1982), and a translog function. This study's results favour the use of the former, based on tests of regression coefficients and on estimates of various economy measures. The Fourier evidence shows that only smaller banks exhibit increasing returns to scale, while larger banks exhibit decreasing returns to scale. Conversely, the translog indicates that all the sample groups continue to enjoy economies of scale. Banks in Taiwan exhibit scope diseconomies, which suggest that sample banks should continue efforts to diversify their financial products, which in turn could substantially reduce their average costs.

Suggested Citation

  • Tai‐Hsin Huang & Mei‐Hui Wang, 2001. "Estimating Scale and Scope Economies with Fourier Flexible Functional Form – Evidence from Taiwan's Banking Industry," Australian Economic Papers, Wiley Blackwell, vol. 40(2), pages 213-231, June.
    • Handle: RePEc:bla:ausecp:v:40:y:2001:i:2:p:213-231
    DOI: 10.1111/1467-8454.00123
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    Cited by:

    1. Xu, Lili & Matsumura, Toshihiro, 2022. "Welfare-reducing price competition under relative performance delegation with convex costs," Economic Modelling, Elsevier, vol. 112(C).
    2. Dar-Yeh Hwang & Alice C. Lee & Chi-Chun Liu & Lishu Ouyang, 2009. "Balanced Performance Index and Its Implications: Evidence from Taiwan's Commercial Banks," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 12(01), pages 27-62.
    3. Gabriel Courey, 2018. "Spatial price discrimination, sequential location and convex production costs," Letters in Spatial and Resource Sciences, Springer, vol. 11(2), pages 223-232, July.
    4. John S. Heywood & Dongyang Li & Guangliang Ye, 2022. "Mixed duopoly under hotelling with convex production costs," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 69(2), pages 487-510, October.

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