Risk Premium, Interest Rate Differential, and Subsidized Lending in Pakistan
AbstractEpisodes of monetary contraction increases the risk premium of the enterprises which results in higher effective interest rate differential between market loans and subsidized loan; making these firms more reliant on subsidized loans. Since subsidies are easier to exploit and hard to administer. This study evaluates the subsidized lending schemes of Pakistan using information on risk premium and effective interest rate differential of 174 exporting corporate firms over thirteen years (1999-2011). Our results shows that export finance schemes (EFS) helped promoting exports, while long term financing facility (LTFF) facilitated fixed capital formation of these corporate firms. Additionally, using matched sample with loan level data from eCIB, we found that during the phases of high interest rate differential enterprises substituted their short term market loans with subsidized loans (export finance); while no such substitution is observed between long term loans and LTFF.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 48250.
Date of creation: 20 Jun 2013
Date of revision:
Risk Premium; Interest rate differential; Subsidized lending;
Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-20 (All new papers)
- NEP-CWA-2013-07-20 (Central & Western Asia)
- NEP-MAC-2013-07-20 (Macroeconomics)
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