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

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Author Info
Mali Chivakul
Ke Chen Chen

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

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Length: 34 pages
Date of creation: 27 Aug 2008
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Handle: RePEc:imf:imfwpa:08/202

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Related research
Keywords: Bosnia and Herzegovina ; Credit expansion ; Credit restraint ; Public debt ; Education ; Unemployment ; Economic conditions ; Interest rates ; Inflation ; Credit policy ; Economic models ; Working Paper ;

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  7. Hall, Robert E & Mishkin, Frederic S, 1982. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," Econometrica, Econometric Society, vol. 50(2), pages 461-81, March. [Downloadable!] (restricted)
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  8. Modigliani, Franco, 1986. "Life Cycle, Individual Thrift, and the Wealth of Nations," American Economic Review, American Economic Association, vol. 76(3), pages 297-313, June. [Downloadable!] (restricted)
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  11. 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. [Downloadable!]
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  12. Jappelli, Tullio & Pagano, Marco, 1988. "Liquidity-Constrained Households in an Italian Cross-Section," CEPR Discussion Papers 257, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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