Impact of Trade Area Environment on Bank’s Comparative Advantages

Applied Economics, Vol. 40, pp. 2209–2219, 2008

12 Pages Posted: 6 Mar 2010

See all articles by Hervé Leleu

Hervé Leleu

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Aude Marie Deville

affiliation not provided to SSRN

Date Written: 2008

Abstract

This article analyses the relationship between the comparative advantages of bank branches and the trade area environment. Bank branches are points of sale whose trade environment influences their activities and performance. Comparative advantages are defined, for each output mix, by the strict dominance of a production technology in a specific trade area over the production technologies of other environments. Using Shephard’s output distance functions on a sample of 728 bank branches, we compare the production technologies for different output mixes and different trade environments. We show that none of the production technologies strictly dominates the others and none of them is strictly dominated. Therefore, each trade area benefits from comparative advantages that we try to highlight. Finally, we evaluate the performance of the central banks regarding their ability to provide the right incentives on output mixes to their bank branches so that the latter may benefit from their comparative advantages.

Keywords: efficiency evaluation, comparative advantage, retail banking

JEL Classification: G21, L11, D24

Suggested Citation

Leleu, Hervé and Deville, Aude Marie, Impact of Trade Area Environment on Bank’s Comparative Advantages (2008). Applied Economics, Vol. 40, pp. 2209–2219, 2008, Available at SSRN: https://ssrn.com/abstract=1564770

Hervé Leleu

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

Aude Marie Deville (Contact Author)

affiliation not provided to SSRN ( email )

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