Economies of Scale and Scope in the Turkish Banking Industry: The Effect of the Financial Liberalization Program

Abstract

The cost structure of the Turkish Banking IIKl.ustry is investigated by using classical and hybrid translog functional forms. Cost functions are estimated for two different periods, 1981-1985 and 1989-1993 in order to compare the cost structure of the industry before the implementation of the Finaucial Liberalization Program and a decade after. The findings from the classical translog function indicate that the banking industry experienced significant increasing returns to scale for both periods. On the contrary, the regression results from the hybrid translog function suggest that the industry is characterized by economies of scale for smaller banks and diseconomies of scale for medium and larger banks. The hybrid translog function seems to reflect the characteristics of the banking industry better for the existing samples. There is also evidence of economies of scope in short-term and other type of loans (long-term and specialized loans). (Ll 1, G21)