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Estimating Scale and Scope Economies with Fourier Flexible Functional Form – Evidence from Taiwan's Banking Industry
Author(s) -
Huang TaiHsin,
Wang MeiHui
Publication year - 2001
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/1467-8454.00123
Subject(s) - diseconomies of scale , scope (computer science) , economies of scale , sample (material) , scale (ratio) , economies of scope , economics , economies of agglomeration , business , function (biology) , monetary economics , financial system , microeconomics , geography , chemistry , cartography , chromatography , evolutionary biology , computer science , biology , programming language
In this study the scale and scope economies for Taiwan's banking sector using panel data from 22 domestic banks for the period 1981–1997 is investigated quantitatively using both a Fourier flexible functional form, first proposed by Gallant (1981, 1982), and a translog function. This study's results favour the use of the former, based on tests of regression coefficients and on estimates of various economy measures. The Fourier evidence shows that only smaller banks exhibit increasing returns to scale, while larger banks exhibit decreasing returns to scale. Conversely, the translog indicates that all the sample groups continue to enjoy economies of scale. Banks in Taiwan exhibit scope diseconomies, which suggest that sample banks should continue efforts to diversify their financial products, which in turn could substantially reduce their average costs.