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Increasing Wealth and Increasing Instability: The Role of Collateral

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  • Tse, Chung Yi
  • Leung, Charles Ka Yui

Abstract

In development economics, growth in credit is generally associated with faster long-run growth as financial intermediation improves the efficiency of channeling capital to productive investment. Yet, among developing countries high growth in credit almost always guarantees the outbreak of a financial crisis. The authors attempt to reconcile the two seemingly contradictory facts with an endogenous growth model in which entry to international borrowing entails some significant fixed cost. The poorest countries are excluded from international borrowing because of the fixed cost. The higher-income developing countries will find it optimal to sink the fixed cost to borrow internationally, growing faster as a result, but also become prone to fluctuations arising from shocks to the international financial market. Copyright 2002 by Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 10 (2002)
Issue (Month): 1 (February)
Pages: 45-52

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Handle: RePEc:bla:reviec:v:10:y:2002:i:1:p:45-52

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Cited by:
  1. Kamhon Kan & Sunny Kai-sun Kwong & Charles Ka-yui Leung, 2002. "The Dynamics and Volatility of Commercial and Residential Property Prices: Theory and Evidence," Departmental Working Papers _147, Chinese University of Hong Kong, Department of Economics.
  2. Roy Cerqueti & Raffaella Coppier, 2009. "Economic growth, corruption and tax evasion," Working Papers 58-2009, Macerata University, Department of Finance and Economic Sciences, revised Jan 2010.
  3. Chen, Chien-Liang & Kuan, Chung-Ming & Lin, Chu-Chia, 2007. "Saving and housing of Taiwanese households: New evidence from quantile regression analyses," Journal of Housing Economics, Elsevier, vol. 16(2), pages 102-126, June.
  4. Charles Ka Yui Leung, 2004. "Macroeconomics and Housing: A Review of the Literature," Discussion Papers 00004, Chinese University of Hong Kong, Department of Economics.
  5. Chen, Nan-Kuang & Chen, Shiu-Sheng & Chou, Yu-Hsi, 2010. "House prices, collateral constraint, and the asymmetric effect on consumption," Journal of Housing Economics, Elsevier, vol. 19(1), pages 26-37, March.
  6. Chang, Kuang Liang & Chen, Nan Kuang & Leung, Charles Ka Yui, 2011. "The Dynamics of Housing Returns in Singapore: How Important are the International Transmission Mechanisms?," MPRA Paper 32255, University Library of Munich, Germany.
  7. Nan-Kuang Chen & Hsiao-Lei Chu, 2003. "Collateral Value and Forbearance Lending," CEP Discussion Papers dp0603, Centre for Economic Performance, LSE.
  8. Richard J. Buttimer Jr. & Anthony Yanxiang Gu & Tyler T. Yang, 2004. "The Chinese Housing Provident Fund," International Real Estate Review, Asian Real Estate Society, vol. 7(1), pages 1-30.
  9. Nan-Kuang Chen & Charles Leung, 2008. "Asset Price Spillover, Collateral and Crises: with an Application to Property Market Policy," The Journal of Real Estate Finance and Economics, Springer, vol. 37(4), pages 351-385, November.
  10. Leung, Charles Ka Yui & Chow, Kenneth & Yiu, Matthew & Tam, Dickson, 2010. "House Market in Chinese Cities: Dynamic Modeling, In-Sampling Fitting and Out-of-Sample Forecasting," MPRA Paper 27367, University Library of Munich, Germany.

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