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Internet banking: an exploration in technology diffusion and impact

Listed author(s):
  • Richard J. Sullivan
  • Zhu Wang

This paper studies the diffusion and impact of a cost-saving technological innovation—Internet banking. Our theory characterizes the process through which the innovation is adopted sequentially by large and small banks, and how the adoption affects bank size distribution. Applying the theory to an empirical study of Internet banking diffusion among banks across 50 U.S. 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 change in average bank size, and explain the variation in diffusion rates across geographic regions.

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Paper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 13-10.

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Date of creation: 2013
Handle: RePEc:fip:fedrwp:13-10
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  1. Jovanovic, B. & MacDonald, G., 1993. "The Life Cycle of a Competitive Industry," Working Papers 93-34, C.V. Starr Center for Applied Economics, New York University.
  2. Massoud Karshenas & Paul L. Stoneman, 1993. "Rank, Stock, Order, and Epidemic Effects in the Diffusion of New Process Technologies: An Empirical Model," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 503-528, Winter.
  3. Hernández-Murillo, Rubén & Llobet, Gerard & Fuentes, Roberto, 2010. "Strategic online banking adoption," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1650-1663, July.
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  6. Richard J. Sullivan, 2004. "Payment services and the evolution of Internet banking," Payments System Research Briefing, Federal Reserve Bank of Kansas City, issue Aug.
  7. Courchane, Marsha & Nickerson, David & Sullivan, Richard, 2002. "Investment in internet banking as a real option: theory and tests," Journal of Multinational Financial Management, Elsevier, vol. 12(4-5), pages 347-363.
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  13. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
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  15. 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.
  16. Klepper, Steven, 1996. "Entry, Exit, Growth, and Innovation over the Product Life Cycle," American Economic Review, American Economic Association, vol. 86(3), pages 562-583, June.
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  18. Kevin J. Stiroh, 2001. "Information technology and the U.S. productivity revival: what do the industry data say?," Staff Reports 115, Federal Reserve Bank of New York.
  19. Michael P. Murray, 2006. "Avoiding Invalid Instruments and Coping with Weak Instruments," Journal of Economic Perspectives, American Economic Association, vol. 20(4), pages 111-132, Fall.
  20. 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.
  21. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
  22. Robert DeYoung, 2005. "The Performance of Internet-Based Business Models: Evidence from the Banking Industry," The Journal of Business, University of Chicago Press, vol. 78(3), pages 893-948, May.
  23. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
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