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The Economic Effects of a Borrower Bailout: Evidence from an Emerging Market

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  • Xavier Giné
  • Martin Kanz

Abstract

We study the credit market impact and real effects of one of the largest borrower bailouts in history, enacted by the government of India against the backdrop of the 2007–2008 financial crisis. We find that the bailout led to a significant reallocation of credit and greater defaults, but had no offsetting positive effect on productivity, wages, or consumption. Post-program loan performance deteriorates faster in districts with greater program exposure, an effect that is not driven by greater risk-taking of banks. Loan defaults become more sensitive to the electoral cycle after debt relief, suggesting strategic default in response to the bailout. Received December 1, 2015; editorial decision April 11, 2017 by Editor Philip Strahan.

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  • Xavier Giné & Martin Kanz, 2018. "The Economic Effects of a Borrower Bailout: Evidence from an Emerging Market," The Review of Financial Studies, Society for Financial Studies, vol. 31(5), pages 1752-1783.
    • Handle: RePEc:oup:rfinst:v:31:y:2018:i:5:p:1752-1783.
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    2. Saibal Ghosh, 2023. "Political connections and bank behaviour," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 52(1), February.
    3. Kumar, Nitish, 2020. "Political interference and crowding out in bank lending," Journal of Financial Intermediation, Elsevier, vol. 43(C).
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    7. World Bank, "undated". "South Asia Economic Focus, Spring 2020," World Bank Publications - Reports 33478, The World Bank Group.
    8. André Albuquerque Sant’Anna & Lucas Costa, 2019. "Bailing out environmental liabilities: moral hazard and deforestation in the Brazilian Amazon," Documentos de Trabajo 17435, The Latin American and Caribbean Economic Association (LACEA).

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