Microeconomic implications of credit booms: evidence from emerging Europe
AbstractWhile credit is essential for investment, innovation and economic growth, there are risks related to excessive indebtedness in the corporate sector in the form of increased likelihood of financial distress and bankruptcy. The recent global crisis has highlighted the macroeconomic risks of credit booms. This paper focuses on microeconomic implications of high leverage and provides an innovative firm-level approach to endogenously identify the threshold leverage beyond which corporate indebtedness becomes “excessive”. Estimates for emerging central and eastern European countries suggest that total factor productivity (TFP) growth increases with leverage until it reaches a critical threshold. Beyond this threshold, higher leverage lowers TFP growth.
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Bibliographic InfoPaper provided by European Bank for Reconstruction and Development, Office of the Chief Economist in its series Working Papers with number 119.
Length: 34 pages
Date of creation: Oct 2010
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Find related papers by JEL classification:
- O1 - Economic Development, Technological Change, and Growth - - Economic Development
- P2 - Economic Systems - - Socialist Systems and Transition Economies
- P5 - Economic Systems - - Comparative Economic Systems
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-05 (All new papers)
- NEP-EEC-2011-02-05 (European Economics)
- NEP-FDG-2011-02-05 (Financial Development & Growth)
- NEP-TRA-2011-02-05 (Transition Economics)
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