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What Drives Household Borrowing and Credit Constraints? Evidence from Bosnia & Herzegovina

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Author Info

  • Ke Chen Chen
  • Mali Chivakul

Abstract

Although Bosnia and Herzegovina (BiH) has experienced rapid growth in credit to households in recent years, most individuals are still credit constrained. This paper analyzes the determinants of household credit demand and credit constraints in BiH. To our knowledge, it is the first study on this topic employing household survey data (2001 and 2004) from Emerging Europe. Our results highlight the impact of the post-conflict and transitional nature of the country on the behavior of borrowers and lenders. As expected, age, income, wealth and education qualifications are the main factors driving credit market participation, while high income and high wealth lower credit constraints. In BiH, the probability of credit market participation peaks at 45 years old, considerably higher than in the advanced countries. At the same time, older individuals are significantly more constrained than their peers in the advanced countries. The results imply that the current credit boom may largely reflect the overall post-war demand, and indicate the worse-off position of the older generation in transition economy. Moreover, the results underscore the structural nature of unemployment as well as the mismatch between education qualifications and earning prospects in BiH. Education variables have no significant effect on the likelihood of being constrained, while, unlike in the advanced countries, being unemployed significantly increases the likelihood.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/202.

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Length: 53
Date of creation: 01 Aug 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/202

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Related research

Keywords: Credit expansion; Credit restraint; Public debt; Unemployment; Economic conditions; Interest rates; Credit policy; Economic models;

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References

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  1. János István Tóth & Zsófia Árvai, 2001. "Liquidity Constraints and Consumer Impatience," MNB Working Papers 2001/2, Magyar Nemzeti Bank (the central bank of Hungary).
  2. Jappelli, Tullio, 1990. "Who Is Credit Constrained in the U.S. Economy?," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 219-34, February.
  3. Fumio Hayashi, 1982. "The Effect of Liquidity Constraints on Consumption: Cross-Sectional Analysis," Discussion Papers 516, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Andrew Benito & Haroon Mumtaz, 2006. "Consumption excess sensitivity, liquidity constraints and the collateral role of housing," Bank of England working papers 306, Bank of England.
  5. Duca John V. & Rosenthal Stuart S., 1993. "Borrowing Constraints, Household Debt, and Racial Discrimination in Loan Markets," Journal of Financial Intermediation, Elsevier, vol. 3(1), pages 77-103, October.
  6. Ana del Río & Garry Young, 2005. "The determinants of unsecured borrowing: evidence from the British household panel survey," Banco de España Working Papers 0511, Banco de España.
  7. Jonathan Crook, 2001. "The demand for household debt in the USA: evidence from the 1995 Survey of Consumer Finance," Applied Financial Economics, Taylor and Francis Journals, vol. 11(1), pages 83-91.
  8. Robert E. Hall & Frederic S. Mishkin, 1982. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," NBER Working Papers 0505, National Bureau of Economic Research, Inc.
  9. Donald Cox & Tullio Japelli, 1993. "The Effect Of Borrowing Constraints On Consumer Liabilities," Boston College Working Papers in Economics 228, Boston College Department of Economics.
  10. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  11. Modigliani, Franco, 1985. "Life Cycle, Individual Thrift and the Wealth of Nations," Nobel Prize in Economics documents 1985-1, Nobel Prize Committee.
  12. Jappelli, Tullio & Pagano, Marco, 1988. "Liquidity-Constrained Households in an Italian Cross-Section," CEPR Discussion Papers 257, C.E.P.R. Discussion Papers.
  13. Silvia Magri, 2002. "Italian households' debt: determinants of demand and supply," Temi di discussione (Economic working papers) 454, Bank of Italy, Economic Research and International Relations Area.
  14. Wooldridge, Jeffrey M., 1995. "Selection corrections for panel data models under conditional mean independence assumptions," Journal of Econometrics, Elsevier, vol. 68(1), pages 115-132, July.
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Citations

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Cited by:
  1. AnneWelle-Strand & Kristian Kjollesdal & Nick Sitter, 2010. "Assessing Microfinance: The Bosnia and Herzegovina Case," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 8(2), pages 145-166.
  2. Marion Leturcq, 2011. "Do bankers prefer married couples?," Working Papers halshs-00655584, HAL.
  3. Doan, Tinh & Gibson, John & Holmes, Mark, 2010. "What determines credit participation and credit constraints of the poor in peri-urban areas, Vietnam?," MPRA Paper 27509, University Library of Munich, Germany, revised 17 Dec 2010.

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