Loan Defaults in Africa
AbstractAfrican financial deepening is beset by a high rate of loan defaults, which encourages banks to hold liquid assets instead of lending. We put forward a novel theoretical model that captures the salient features of African credit markets which shows that equilibrium with high loan defaults and low lending can arise when contract enforcement institutions are weak, investment opportunities are relatively scarce and information imperfections abound. We provide evidence using a panel of 110 banks from 29 African countries which corroborates our theoretical predictions.
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Bibliographic InfoPaper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 11/36.
Date of creation: Aug 2011
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Postal: Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK
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Web page: http://www2.le.ac.uk/departments/economics
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Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
This paper has been announced in the following NEP Reports:
- NEP-AFR-2012-02-01 (Africa)
- NEP-ALL-2012-02-01 (All new papers)
- NEP-BAN-2012-02-01 (Banking)
- NEP-CTA-2012-02-01 (Contract Theory & Applications)
- NEP-DEV-2012-02-01 (Development)
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- Bose, Arup & Pal, Debashis & Sappington, David E.M., 2012. "Extreme screening policies," European Economic Review, Elsevier, Elsevier, vol. 56(8), pages 1607-1620.
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