Productivity and welfare: an application to the Spanish banking industry

Alfredo Martín Oliver (), Sonia Ruano Pardo and Vicente Fumás
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Alfredo Martín Oliver: Universitat de les Illes Balears
Sonia Ruano Pardo: Banco de España
Vicente Fumás: Universidad de Zaragoza
Authors registered in the RePEc Author Service: Alfredo Martin-Oliver

No 1426, Working Papers from Banco de España

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

Keywords: banking spatial competition; bank branch productivity; interest rates; branch dynamics; bank economic profits. (search for similar items in EconPapers)
JEL-codes: E43 G21 L11 O30 R32 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2014-10
New Economics Papers: this item is included in nep-ban, nep-com, nep-cse, nep-eff and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1426

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