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Financial Crisis, Economic Recovery and Banking Development in Former Soviet Union Economies

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  • Haizhou Huang
  • Dalia Marin
  • Chenggang Xu

Abstract

This paper explains both the onset of the financial crisis in 1998 and the striking economic recovery afterwards in Russia and other Former Soviet Union (FSU) economies. Before the crisis banks do not lend to the real sector of the economy and firms use non-bank finance, including trade credits and barter trade, to finance production. The banking failure arises due to the coexistence of adverse selection in a lemons credit market jointly with high government borrowing. The collapse of the treasury bills market in the financial crisis of August 1998 triggers a change in banks lending behavior. A strong economic recovery follows which provides initial conditions for banking development.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 860.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_860

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  1. Blanchard, O & Kremer, M, 1996. "Disorganization," Working papers 96-30, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Dalia Marin & Daniel Kaufmann & Bogdan Gorochowskij, 2000. "Barter in Transition Economies: Competing Explanations Confront Ukranian Data," William Davidson Institute Working Papers Series 287, William Davidson Institute at the University of Michigan.
  3. Norman Loayza & Romain Rancière, 2004. "Financial development, financial fragility and growth," Economics Working Papers 855, Department of Economics and Business, Universitat Pompeu Fabra.
  4. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
  5. Dalia Marin & Monika Schnitzer, 2000. "Disorganization and Financial Collapse," CESifo Working Paper Series 339, CESifo Group Munich.
  6. Ratna Sahay & Deepak Mishra & Poonam Gupta, 2003. "Output Response to Currency Crises," IMF Working Papers 03/230, International Monetary Fund.
  7. Prakash Loungani & Paolo Mauro, 2001. "Capital Flight from Russia," The World Economy, Wiley Blackwell, vol. 24(5), pages 689-706, 05.
  8. Perotti, Enrico, 2002. "Lessons from the Russian Meltdown: The Economics of Soft Legal Constraints," International Finance, Wiley Blackwell, vol. 5(3), pages 359-99, Winter.
  9. Gelfer, Stanislav & Perotti, Enrico C, 1999. "Red Barons or Robber Barons? Governance and Financing in Russian FIG," CEPR Discussion Papers 2204, C.E.P.R. Discussion Papers.
  10. Guillermo Calvo & Fabrizio Coricelli, 1992. "Output Collapse in Eastern Europe," IMF Working Papers 92/64, International Monetary Fund.
  11. Berglöf, Erik & Bolton, Patrick, 2003. "The Great Divide and Beyond - Financial Architecture in Transition," CEPR Discussion Papers 3476, C.E.P.R. Discussion Papers.
  12. Dalia Marin & Monika Schnitzer, 2002. "Contracts in Trade and Transition: The Resurgence of Barter," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262133997, December.
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Cited by:
  1. Khilji, Bashir Ahmad & Farrukh, Muhammad Umer & Iqbal, Mammona & Hameed, Shahzad, 2010. "The Impact of Recent Financial Recession on the Banking sector of Pakistan," MPRA Paper 30558, University Library of Munich, Germany, revised 05 Jan 2011.
  2. José Noguera & Susan J. Linz, 2005. "Barter, Credit, and Welfare: A theoretical inquiry into the barter phenomenon in Russia," William Davidson Institute Working Papers Series wp757, William Davidson Institute at the University of Michigan.

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