Wednesday, October 28, 2020

Technology Diffusion: The Case of Internet Banking

Technology Diffusion: The Case of Internet Banking

Richard J. Sullivan

Federal Reserve Bank of Kansas City

Zhu Wang

Federal Reserve Banks - Federal Reserve Bank of Richmond


Taking internet banking as an example, we study diffusion of cost-saving technological innovations. We show that the diffusion of internet banking follows an S-shaped logistic curve as it penetrates a log-logistic bank-size distribution. We test the theoretical hypothesis with an empirical study of internet banking diffusion among banks across fifty U.S. states. Using an instrument-variable approach, we estimate the positive effect of average bank size on internet banking diffusion. The empirical findings allow us to examine the technological, economic, and institutional factors governing the diffusion process and explain the variation in diffusion rates across geographic regions.

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