Increasing Wealth and Increasing Instability: The Role of Collateral
AbstractIn 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 InfoArticle provided by Wiley Blackwell in its journal Review of International Economics.
Volume (Year): 10 (2002)
Issue (Month): 1 (February)
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Other versions of this item:
- Leung, C.K.Y. & Tse, C.Y., 2001. "Increasing Wealth and Increasing Instability: The Role of Collateral," Working Papers e-01-3, Hoover Institution, Stanford University.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
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