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The Research on the Economies of Scale and Economies of Scope in China’ Banking Industry

Author: GuoLingYun
Tutor: LiuShuXiang
School: Southwestern University of Finance and Economics
Course: Western Economics
Keywords: Banking Economies of Scale Economies of Scope Generalized Translog cost function
CLC: F224
Type: Master's thesis
Year: 2008
Downloads: 225
Quote: 0
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Abstract

Based on the theoretical analyses of scope economies and scale economies for the banking industry, this paper examines China’s situation empirically. Scale economies of the banking describes the relationship between scale and cost-revenue, while scope economies refers to the cost-revenue when banks offer sorts of products and operations. The relevant research can explain not only the present banks’ mergers and takeovers, but also the hybrid operation of financial industry.Scale economies and scope economies are theoretical and empirical problems, which require theoretical analyses and the corresponding empirical tests. Therefore, this paper firstly analyzed scale economies and scope economies of China’s banking according to the general theory about scale economies and scope economies. Considering the empirical result and the peculiar situation China’s banking faces, this paper puts forward some suggestions on improving the scale economies and scope economies of China’s banking.The empirical result shows that as a whole, scale economies do not exist in China. By comparison, this is more significant in the state-owned commercial banks, and less can be found in the joint-stock ones. This means the scale of joint -stock banks is not big enough. In the view of the tendency, little numerical change of scale economies appears in each bank, embodying the deregulation of banks’control and the increasing optimal scale as a result of the technology progress. It implies both commercial banks and joint-stock ones can save costs from expanding. In the meanwhile, deregulating banks control and investing more in technology also contribute to its optimal scale. On the other hand, both banks have collective scope economies. It demonstrates that loans, investments and deposits are more cost-saving when being offered by a single bank. No matter which angle we choose, from the whole or the individual, scope economies is more significant in state-owned banks than that in joint-stock commercial ones. Implications for China are following: firstly, deregulating controlling on banks, especially the entry regulation and encouraging the establishment of the private banks and foreign banks to make banks more competitive and more efficient. Secondly, improving the banking mergers to a certain extent, and then realizing the mix operation and gain scale benefits and their anti-risk ability. Thirdly, informational investment should be strengthened to increase gains from technology. Finally, strengthening finance supervision, ensure the steady development of banks.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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