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Interbank market frictions, international banks and growth

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Author Info

  • Thomas Gries

    ()

  • Gerhard Sievert
  • Axel Wieneke

Abstract

In developing countries and countries in transition, a lack of finance is regarded as a major reason for the underperformance of the SME sector. The financial sector does not channel funds efficiently from savers to the most efficient investment. In a general equilibrium endogenous growth model, we explain the underperformance of the SME sector by interbank market frictions. High information costs in the interbank market lead to a high loan/deposit spread and hence to a low growth equilibrium. The solution to this problem is twofold. First, central bank policy could reduce interbank information problems by providing effective bank supervision. Second, if the central bank is expected not to have sufficient monitoring capabilities, reputation and reserves, opening up the interbank market to international banks can substitute for insufficient central bank activities. Copyright Springer-Verlag Berlin Heidelberg 2004

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File URL: http://hdl.handle.net/10.1007/s10368-004-0011-z
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Bibliographic Info

Article provided by Springer in its journal International Economics and Economic Policy.

Volume (Year): 1 (2004)
Issue (Month): 2 (January)
Pages: 157-171

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Handle: RePEc:kap:iecepo:v:1:y:2004:i:2:p:157-171

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Web page: http://www.springerlink.com/link.asp?id=111059

Related research

Keywords: Endogenous growth; transition; financial intermediation; interbank market; asymmetric information; P20; O16; G21;

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Cited by:
  1. Christa N. Brunnschweiler, 2006. "Financing the alternative: renewable energy in developing and transition countries," CER-ETH Economics working paper series 06/49, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

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