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

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  • Huang, Haizhou
  • Marin, Dalia
  • Xu, Cheng-Gang

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 behaviour. As a result output recovers which provides initial conditions for banking development.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3794.

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Date of creation: Feb 2003
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Handle: RePEc:cpr:ceprdp:3794

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Keywords: banking development; institutional trap; non-banking finance;

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References

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  1. Olivier Blanchard & Michael Kremer, 1997. "Disorganization," William Davidson Institute Working Papers Series 38, William Davidson Institute at the University of Michigan.
  2. Dalia Marin & Monika Schnitzer, 2000. "Disorganization and Financial Collapse," CESifo Working Paper Series 339, CESifo Group Munich.
  3. Erik Berglof & Patrick Bolton, 2001. "The Great Divide and Beyond: Financial Architecture in Transition," William Davidson Institute Working Papers Series 414, William Davidson Institute at the University of Michigan.
  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. Enrico Perotti, 2001. "Lessons from the Russian Meltdown: The Economics of Soft Legal Constraints," William Davidson Institute Working Papers Series 379, William Davidson Institute at the University of Michigan.
  6. Norman Loayza & Romain Ranciere, 2002. "Financial Development, Financial Fragility, and Growth," Working Papers Central Bank of Chile 145, Central Bank of Chile.
  7. Marin, Dalia & Kaufmann, Daniel & Gorochowskij, Bogdan, 2000. "Barter in Transition Economies: Competing Explanations Confront Ukrainian Data," Discussion Papers in Economics 63, University of Munich, Department of Economics.
  8. 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.
  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. Prakash Loungani & Paolo Mauro, 2001. "Capital Flight from Russia," The World Economy, Wiley Blackwell, vol. 24(5), pages 689-706, 05.
  11. Ratna Sahay & Deepak Mishra & Poonam Gupta, 2003. "Output Response to Currency Crises," IMF Working Papers 03/230, International Monetary Fund.
  12. Guillermo Calvo & Fabrizio Coricelli, 1992. "Output Collapse in Eastern Europe," IMF Working Papers 92/64, International Monetary Fund.
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Cited by:
  1. 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.
  2. 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.

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