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Productivity and welfare: an application to the Spanish banking industry

Author

Listed:
  • Alfredo Martín Oliver

    (Universitat de les Illes Balears)

  • Sonia Ruano Pardo

    (Banco de España)

  • Vicente Salas Fumás

    (Universidad de Zaragoza)

Abstract

This paper examines the links between productivity and social welfare, with an application to the banking industry. It models spatial price competition between bank branches jointly with banks’ decisions on the opening or closing of branches based on profit expectations. The model predicts that more productive banks set lower (higher) interest rates on loans (deposits) and increase their market share through both higher demand per branch and a larger network of branches. Specifically, the paper i) uses a new measure of bank productivity; ii) provides a productivity differences-based explanation of the distance between bank branches and bank customers; and iii) shows how the intensity of market competition may be unaffected when the number of banks decreases, provided that banks continue expanding their branch network. The empirical implementation of the model uses Spanish banks over the period 1993-2007 and it confirms the theoretical predictions of the paper

Suggested Citation

  • Alfredo Martín Oliver & Sonia Ruano Pardo & Vicente Salas Fumás, 2014. "Productivity and welfare: an application to the Spanish banking industry," Working Papers 1426, Banco de España.
  • Handle: RePEc:bde:wpaper:1426
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    References listed on IDEAS

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    2. Gardó, Sándor & Klaus, Benjamin, 2020. "Overcapacities in banking: Measurement, trends and determinants," Economic Modelling, Elsevier, vol. 91(C), pages 819-834.

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    More about this item

    Keywords

    banking spatial competition; bank branch productivity; interest rates; branch dynamics; bank economic profits.;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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