Technological change and economies of scale in Canadian financial institutions: A selection from competing hypotheses

This study isolates economies of scale from technological change in Canadian financial institutions. By employing the most general translog cost function and by using a sequential Akaike's information criterion test, we select the most appropriate model from 127 possible hypotheses. The results suggest that there exist increasing returns to scale and that technological change is not Hicks-neutral. In fact, technological change has resulted in greater relative expenditures on physical capital. These results suggest that further integration, centralization, and sharing of technology would be benificial in the Canadian financial industry.