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Cost of Borrowing, Institutional Quality, and Capital Openness

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  • Gabriel Martinez

    ()
    (Department of Economics, Ave Maria University)

Abstract

Does improving institutional quality lower borrowing costs or raise them? Better institutions the marginal productivity of capital, the demand for funds and the interest rate. They may also lending risks, raising the supply of funds and lowering the cost of capital. Using data from 100 this paper shows that the impact of institutional quality on borrowing costs depends on whether country has favored improving financial institutions, which is proxied by its openness to capital flows, controlling for a host of factors. These results are robust to changes in definitions and specification.

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File URL: http://mysite.avemaria.edu/RePEc/working-papers/WP1001-Martinez-Cost-of-Borrowing.pdf
File Function: First version, 2010
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Bibliographic Info

Paper provided by Ave Maria University, Department of Economics in its series Working Papers with number 1001.

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Length: 30 pages
Date of creation: Jul 2010
Date of revision:
Handle: RePEc:avm:wpaper:1001

Contact details of provider:
Postal: 5050 Ave Maria Boulevard, Ave Maria, Florida 34142-9505
Web page: http://www.avemaria.edu/economics
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Keywords: interest rates; institutional quality;

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  1. Menzie D. Chinn & Hiro Ito, 2005. "What Matters for Financial Development? Capital Controls, Institutions, and Interactions," NBER Working Papers 11370, National Bureau of Economic Research, Inc.
  2. Gaston Gelos, 2006. "Banking Spreads in Latin America," IMF Working Papers 06/44, International Monetary Fund.
  3. Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2006. "An Equilibrium Model of "Global Imbalances" and Low Interest Rates," NBER Working Papers 11996, National Bureau of Economic Research, Inc.
  4. Peter Blair Henry, 2006. "Capital account liberalization: theory, evidence, and speculation," Working Paper Series 2007-32, Federal Reserve Bank of San Francisco.
  5. Abdul Abiad & Enrica Detragiache & Thierry Tressel, 2010. "A New Database of Financial Reforms," IMF Staff Papers, Palgrave Macmillan, vol. 57(2), pages 281-302, June.
  6. Francesco Caselli & James Feyrer, 2005. "The Marginal Product of Capital," NBER Working Papers 11551, National Bureau of Economic Research, Inc.
  7. Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2008. "Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 347-368, May.
  8. Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
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