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What Drives Household Borrowing and Credit Constraints? Evidence From Bosnia and Herzegovina

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  • 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: 34
Date of creation: 01 Aug 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/202

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Keywords: Credit expansion; Credit restraint; Public debt; Unemployment; Economic conditions; Interest rates; Credit policy; Economic models; probability; credit market; credit constraint; credit constraints; equation; survey; equations; statistics; sample size; independent variables; random error; dummy variables; surveys; econometrics; random variable; binary choice; government agency; correlation; outlier; maximum likelihood method; nonlinearity; dummy variable; covariance; nonlinear relationship; sample selection; maximum likelihood estimation; conditional expectation; sample mean; normal probability distribution function; cumulative distribution function; probability distribution;

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References

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  1. János István Tóth & Zsófia Árvai, 2001. "Liquidity Constraints and Consumer Impatience," MNB Working Papers, Magyar Nemzeti Bank (the central bank of Hungary) 2001/2, Magyar Nemzeti Bank (the central bank of Hungary).
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  3. Silvia Magri, 2002. "Italian households' debt: determinants of demand and supply," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 454, Bank of Italy, Economic Research and International Relations Area.
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Cited by:
  1. Marion Leturcq, 2011. "Do bankers prefer married couples?," Working Papers, HAL halshs-00655584, HAL.
  2. 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.
  3. AnneWelle-Strand & Kristian Kjollesdal & Nick Sitter, 2010. "Assessing Microfinance: The Bosnia and Herzegovina Case," Managing Global Transitions, University of Primorska, Faculty of Management Koper, University of Primorska, Faculty of Management Koper, vol. 8(2), pages 145-166.

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