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Insolvency and Economic Development: Regional Variation and Adjustment

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Author Info
Richard Fabling () (Ministry of Economic Development)
Arthur Grimes () (Motu Economic and Public Policy Research)

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Abstract

This paper examines the determinants of the rate of forced insolvency in New Zealand. The study incorporates two key features. First, we use regional as well as national data to explain insolvencies. The data cover six regions which have had a variety of economic experiences over the sample period (1988-2003). Second, we explain the total rate of forced insolvency in New Zealand, including both personal bankruptcies and involuntary company liquidations. We find that increases in regional economic activity and regional property values (the latter representing collateral effects) reduce regional insolvencies. An increase in credit provision (increased leverage) raises the rate of insolvencies. In a low-inflation environment, a rise in the inflation rate reduces insolvencies, but this effect disappears in a high-inflation environment. We show that interactions between economic activity, leverage and property price shocks provide a rich understanding of how region-specific shocks can compound into significant localised economic cycles.

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File URL: http://motu-www.motu.org.nz/wpapers/03_18.pdf
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Publisher Info
Paper provided by Motu Economic and Public Policy Research in its series Working Papers with number 03_18.

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Length: 44 pages
Date of creation: Feb 2004
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Handle: RePEc:mtu:wpaper:03_18

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Web page: http://www.motu.org.nz
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Related research
Keywords: Insolvency; liquidation; bankruptcy; collateral; regional economy;

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Find related papers by JEL classification:
G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
O18 - Economic Development, Technological Change, and Growth - - Economic Development - - - Regional, Urban, and Rural Analyses

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Richard B. Fabling & Arthur Grimes, 2007. "Practice Makes Profit: Business Practices and Firm Success," Small Business Economics, Springer, vol. 29(4), pages 383-399, December. [Downloadable!] (restricted)
  2. Jean Imbs & Haroon Mumtaz & Morton O. Ravn & Helene Rey, 2002. "PPP Strikes Back: Aggregation and the Real Exchange Rate," NBER Working Papers 9372, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Eric J. Bartelsman & Mark Doms, 2000. "Understanding Productivity: Lessons from Longitudinal Microdata," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 569-594, September. [Downloadable!] (restricted)
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  4. Bruce C. Greenwald & Joseph E. Stiglitz, 1993. "Financial Market Imperfections and Business Cycles," NBER Working Papers 2494, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Platt, Harlan D. & Platt, Marjorie B., 1994. "Business cycle effects on state corporate failure rates," Journal of Economics and Business, Elsevier, vol. 46(2), pages 113-127, May. [Downloadable!] (restricted)
  6. Arthur Grimes & Suzi Kerr & Andrew Aitken, 2003. "Housing and Economic Adjustment," Urban/Regional 0310006, EconWPA. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Arthur Grimes & Suzi Kerr & Andrew Aitken, 2004. "Bi-Directions Impacts of Economic, Social and Environmental Changes and the New Zealand Housing Market," Working Papers 04_09, Motu Economic and Public Policy Research. [Downloadable!]
    Other versions:
  2. Arthur Grimes & Andrew Aitken, 2005. "What’s the Beef with House Prices? Economic Shocks and Local Housing Markets," Urban/Regional 0509011, EconWPA. [Downloadable!]
    Other versions:
  3. Michelle Poland & David C Maré, 2005. "Defining Geographic Communities," Urban/Regional 0509016, EconWPA. [Downloadable!]
    Other versions:
  4. Salman, A. Khalik & von Friedrichs, Yvonne & Shukur, Ghazi, 2009. "Macroeconomic Factors and Swedish Small and Medium-Sized Manufacturing Firm Failure," Working Paper Series in Economics and Institutions of Innovation 185, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies. [Downloadable!]
  5. David C Maré, 2005. "Indirect Effects of Active Labour Market Policies," HEW 0509004, EconWPA. [Downloadable!]
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  6. Arthur Grimes, 2005. "Regional and Industry Cycles in Australasia: Implications for a Common Currency," Macroeconomics 0509020, EconWPA. [Downloadable!]
    Other versions:
  7. Arthur Grimes, 2005. "Intra & Inter-Regional Industry Shocks: A New Metric with an Application to Australasian Currency Union," Macroeconomics 0509019, EconWPA. [Downloadable!]
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