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

Iman Lelyveld and M.A. Donker

Research Series Supervision (discontinued) from Netherlands Central Bank, Directorate Supervision

Abstract: 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.

Keywords: technology; Internet; location; financial services; banking and insurance. (search for similar items in EconPapers)
Date: 2001-12
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