Working Papers

June 1990, No. 90-5

Costs and Technical Change: Effects from Bank Deregulation

David B. Humphrey

Banks were substantially deregulated during the 1980s. Interest costs rose faster than operating expenses (capital, labor) were reduced. As a result, measured technical change in banking was negative: it averaged -0.8% to -1.4% a year over 1977-88. Technical change was measured three different ways and for both equilibrium and disequilibrium factor input specifications. All three approaches--a standard time trend, an index approach, and shifts in cross-section cost functions--gave consistent results. These results were robust whether measured at the banking firm or office level, or at the cost frontier.

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