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Internet banking: an exploration in technology diffusion and impact

  • Richard J. Sullivan
  • Zhu Wang

This paper studies endogenous diffusion and impact of a cost-saving technological innovation -- Internet Banking. When the innovation is initially introduced, large banks have an advantage to adopt it first and enjoy further growth of size. Over time, as the innovation diffuses into smaller banks, the aggregate bank size distribution increases stochastically towards a new steady state. Applying the theory to a panel study of Internet Banking diffusion across 50 US states, we examine the technological, economic and institutional factors governing the process. The empirical findings allow us to disentangle the interrelationship between Internet Banking adoption and growth of average bank size, and explain the variation of diffusion rates across geographic regions.

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Paper provided by Federal Reserve Bank of Kansas City in its series Payments System Research Working Paper with number PSR WP 05-05.

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Date of creation: 2005
Date of revision:
Handle: RePEc:fip:fedkpw:psrwp05-05
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  1. Allen N. Berger & Robert DeYoung, 2002. "Technological progress and the geographic expansion of the banking industry," Working Paper Series WP-02-07, Federal Reserve Bank of Chicago.
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  11. Zhu Wang, 2005. "Technological innovation and market turbulence: the dot-com experience," Payments System Research Working Paper PSR WP 05-02, Federal Reserve Bank of Kansas City.
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  18. Zhu Wang, 2008. "Income Distribution, Market Size and the Evolution of Industry," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 542-565, July.
  19. Rodolfo E. Manuelli & Ananth Seshadri, 2013. "Frictionless technology diffusion: the case of tractors," Working Papers 2013-022, Federal Reserve Bank of St. Louis.
  20. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
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