Intermediation costs in an agricultural development bank: a cost-function approach to measuring scale economies

The cost-output relationships and production technology in the Agricultural Development Bank of Honduras are analyzed using a translog model. Scale economies for the average branch are not significantly different from one. They are a function of output levels reflecting U-shaped cost surfaces. Product-specific economies of scale are substantially different. Returns to scale of lending activities approach unity, whereas there are important unexploited economies to the expansion of deposit mobilization. Cost complementarities between lending and deposit mobilization indicate advantages of joint provision of financial services over the traditional specialization in lending of agricultural development banks in developing countries.