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Innovation, Deregulation, and the Life Cycle of a Financial Service Industry

Author

Listed:
  • Fumiko Hayashi

    (Federal Reserve Bank of Kansas City)

  • Bin Grace Li

    (International Monetary Fund)

  • Zhu Wang

    (Federal Reserve Bank of Richmond)

Abstract

We construct a dynamic equilibrium model to study how a major product innovation (introducing the debit card function) interacted with banking deregulation and drove the shakeout of the U.S. ATM and debit card industry. The model matches the quantitative pattern of the industry well and allows us to conduct counterfactual analyses to evaluate the roles that innovation and deregulation each played in the industry evolution. The findings show that debit innovation was the main driving force for the declining number of ATM networks, but deregulation had an important impact on the industry's welfare gains. (Copyright: Elsevier)

Suggested Citation

  • Fumiko Hayashi & Bin Grace Li & Zhu Wang, 2017. "Innovation, Deregulation, and the Life Cycle of a Financial Service Industry," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 180-203, October.
    • Handle: RePEc:red:issued:13-257
    DOI: 10.1016/j.red.2017.04.001
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    Cited by:

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    3. Li, Bin Grace & McAndrews, James & Wang, Zhu, 2020. "Two-sided market, R&D, and payments system evolution," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 180-199.
    4. Zhu, Chen & Xia, Yuqing & Liu, Qing & Hou, Bojun, 2023. "Deregulation and green innovation: Does cultural reform pilot project matter," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 84-105.
    5. Faia, Ester & Laffitte, Sébastien & Mayer, Maximilian & Ottaviano, Gianmarco, 2021. "Global banking: Endogenous competition and risk taking," European Economic Review, Elsevier, vol. 133(C).
    6. Faia, Ester & Ottaviano, Gianmarco I. P., 2017. "Global banking: Risk taking and competition," LSE Research Online Documents on Economics 83601, London School of Economics and Political Science, LSE Library.
    7. Hetzel, Robert, 2015. "A Comparison of Greece and Germany: Lessons for the Eurozone?," Studies in Applied Economics 33, The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise.
    8. Robert L. Hetzel, 2015. "A Comparison of Greece and Germany: Lessons for the Eurozone?," Working Paper 15-4, Federal Reserve Bank of Richmond.

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    More about this item

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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