Understanding state and national growth co-movement: A study of shared ATM networks in the United States

Prior theoretical work on networks and technology standards suggests that network effects may be viewed as a source of business value and an important element in the valuation of network goods. This study examines the co-movement between network growth at the economy level and in various local markets. We perform an historical analysis of CIRRUS and PLUS, the two largest nationally shared electronic banking networks from the 1980s to the present day, as a means to study regional contagion effects in network growth. We argue that that the perceived business value of a network or technology standard may exhibit spatial differences for firms operating in different markets, and that this may influence aggregate patterns of network technology diffusion. We employ near vector autoregression (NVAR), a variation of vector autoregression (VAR), as a means to gauge the strength of cross-market co-movement patterns. We also develop NVAR time-series models of the growth of CIRRUS and PLUS at the state and national levels, followed by the application of a variance decomposition (VDC) technique that permits us to infer the presence of contagion effects. Our results suggest that the number of account holders, the extent of education and tourism, network service coverage, and market concentration in local markets are drivers of the observed state-to-nation co-movement. We also discuss the broader opportunities that are available for applying the methodology that is presented, including some extensions that will permit the development of additional managerial and policy insights, and expansion to include other kinds of technologies.