This paper studies implications of intermediation costs in credit markets. The presence of intermediation costs increases the amount of risky projects therefore results in financial fragility. Moreover, for an open economy that has a perfectly liberal capital account, prudent firms finance their projects from foreign markets therefore shrinking the domestic credit markets. The theoretical predictions of our model gains support by Turkish data for the 1991 – 2004 period. Data suggests that an increase in intermediation costs results in an increase in non-performing loans, and an increase in foreign financing (shrinking of domestic credit markets). We argue that minimization of these costs improves financial soundness.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Turkish Economic Association in its series Working Papers with number
2008/12.
For technical questions regarding this item, or to correct its listing, contact: (Ercan Uygur).
Related research
Keywords:
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.: