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

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

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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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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  1. Gehrig, Thomas, 1998. "Cities and the Geography of Financial Centres," CEPR Discussion Papers 1894, C.E.P.R. Discussion Papers.
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  9. James E. Rauch, 1991. "Productivity Gains From Geographic Concentration of human Capital: Evidence From the Cities," NBER Working Papers 3905, National Bureau of Economic Research, Inc.
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  11. Claudia M. Buch, 1999. "Why Do Banks Go Abroad? � Evidence from German Data," Kiel Working Papers 948, Kiel Institute for the World Economy.
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