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Abstract
Using the multi-product translog cost function, this paper examines the cost structure
and technical change occurring within the novel Ghanaian rural banks. The results of the
seemingly unrelated error components model indicate substantial unexploited economies of
scale in individual products as well as in overall intermediation. There is presence of
pairwise complementarity between loans and government securities and between deposits
and government securities, but absence of pairwise complementarity between loans and
deposits. Overall, capital-using and labour-saving technical change has occurred but efficiency
loss in deposit mobilization outweighs the efficiency gains in government securities
and lending activities; operation of agencies reinforces the overall efficiency loss. The rural
banks must not be hindered from expanding, but in any growth strategy deposit mobilization
should take a central position and the cost of operating agencies watched closely.