Insolvency and Economic Development: Regional Variation and Adjustment
AbstractThis 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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Bibliographic InfoPaper provided by Motu Economic and Public Policy Research in its series Working Papers with number 03_18.
Length: 44 pages
Date of creation: Feb 2004
Date of revision:
Insolvency; liquidation; bankruptcy; collateral; regional economy;
Other versions of this item:
- Fabling, Richard & Grimes, Arthur, 2005. "Insolvency and economic development: Regional variation and adjustment," Journal of Economics and Business, Elsevier, vol. 57(4), pages 339-359.
- Richard Fabling & Arthur Grimes, 2004. "Insolvency and Economic Development:Regional Variation and Adjustment," Development and Comp Systems 0404006, EconWPA.
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
- O18 - Economic Development, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
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