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Does judicial efficiency lower the cost of credit?

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  • Laeven, Luc
  • Majnoni, Giovanni

Abstract

The authors investigate the effect of judicial efficiency on banks'lending spreads for a large cross section of countries. They measure bank interest rate spreads for 106 countries at an aggregate level, and for 32 countries at the level of individual banks. The authors find that-after controlling for a number of other country characteristics-judicial efficiency, in addition to inflation, is the main driver of interest rate spreads across countries. This suggests that in addition to improving the overall macroeconomic climate in a country, judicial reforms, through a better enforcement of legal contracts, are critical to lowering the cost of financial intermediation for households and firms.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 29 (2005)
Issue (Month): 7 (July)
Pages: 1791-1812

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Handle: RePEc:eee:jbfina:v:29:y:2005:i:7:p:1791-1812

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References

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  1. Arturo Galindo, 2001. "Creditor Rights and the Credit Market: Where Do We Stand?," Research Department Publications 4259, Inter-American Development Bank, Research Department.
  2. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc.
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  5. Asli Demirgüç-Kunt & Luc Laeven & Ross Levine, 2004. "Regulations, market structure, institutions, and the cost of financial intermediation," Proceedings, Federal Reserve Bank of Cleveland, pages 593-626.
  6. Andrew Powell & Marcela Cristini & Ramiro Moya, 2001. "The Importance of an Effective Legal System for Credit Markets: The Case of Argentina," Research Department Publications 3125, Inter-American Development Bank, Research Department.
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