Cost structure and technical change in rural banking

James Obben

Agricultural Economics, 1993, vol. 8, issue 3, 243-263

Abstract: Using the multi‐product translog cost function, this paper examines the cost structure and technical change occurring within the novel Ghanaian rural banks. The results of the seemingly unrelated error components model indicate substantial unexploited economies of scale in individual products as well as in overall intermediation. There is presence of pairwise complementarity between loans and government securities and between deposits and government securities, but absence of pairwise complementarity between loans and deposits. Overall, capital‐using and labour‐saving technical change has occurred but efficiency loss in deposit mobilization outweighs the efficiency gains in government securities and lending activities; operation of agencies reinforces the overall efficiency loss. The rural banks must not be hindered from expanding, but in any growth strategy deposit mobilization should take a central position and the cost of operating agencies watched closely.

Date: 1993
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