Measures of Cost Economies in Chilean Banking: 1984-1991 Measures of Cost Economies in Chilean Banking: 1984-1991

This paper presents measures of cost economies in Chilean banking following the many regulatory and structural changes implemented by Chilean authorities in the aftermath of the 1981-83 financial system crisis. Utilizing panel, and annual cross section monthly data on 37 individual banking institutions in operation over 1984-91, a translogarithmic cost specification is adopted to estimate economies of scale and scope. My findings suggest the presence of persistent and significant economies of scale. Weaker evidence on the presence of economies of scope is also detected. These findings are of additional importance as the estimation methodology adopted overcomes an inherent flaw in most other similar studies that lump together different sizes of financial institutions for a cross sectional analysis over a one or two year period. This paper presents measures of cost economies in Chilean banking following the many regulatory and structural changes implemented by Chilean authorities in the aftermath of the 1981-83 financial system crisis. Utilizing panel, and annual cross section monthly data on 37 individual banking institutions in operation over 1984-91, a translogarithmic cost specification is adopted to estimate economies of scale and scope. My findings suggest the presence of persistent and significant economies of scale. Weaker evidence on the presence of economies of scope is also detected. These findings are of additional importance as the estimation methodology adopted overcomes an inherent flaw in most other similar studies that lump together different sizes of financial institutions for a cross sectional analysis over a one or two year period.