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Bank Discrimination in Transition Economies: Ideology, Information or Incentives?

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  • Loren Brandt

    ()

  • Hongbin Li

    ()

Abstract

We study bank discrimination against private firms in transition countries. Theoretically, we show that banks may discriminate for non-profit reasons, but this discrimination diminishes with a bank’s incentives and human capital. Employing matching bank-firm data from China, we empirically examine the extent, sources and consequences of discrimination. Our unique survey design allows us to disentangle sample truncation, omitted variable bias, and endogeneity issues. Our empirical findings confirm the theoretical predictions. We also find that as a result of discrimination, private firms resort to more expensive trade credits.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 517.

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Length: 43 pages
Date of creation: 01 Oct 2002
Date of revision:
Handle: RePEc:wdi:papers:2002-517

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Keywords: Bank discrimination; privatization; economic transition;

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  1. Neal, Derek A & Johnson, William R, 1996. "The Role of Premarket Factors in Black-White Wage Differences," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 869-95, October.
  2. Kenneth J. Arrow, 1998. "What Has Economics to Say about Racial Discrimination?," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 91-100, Spring.
  3. Alicia H. Munnell, 1992. "Mortgage lending in Boston: interpreting HMDA data," Working Papers 92-7, Federal Reserve Bank of Boston.
  4. Fafchamps, Marcel, 2000. "Ethnicity and credit in African manufacturing," Journal of Development Economics, Elsevier, vol. 61(1), pages 205-235, February.
  5. Chen, Hongyi & Rozelle, Scott, 1999. "Leaders, managers, and the organization of township and village enterprises in China," Journal of Development Economics, Elsevier, vol. 60(2), pages 529-557, December.
  6. Helen F. Ladd, 1998. "Evidence on Discrimination in Mortgage Lending," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 41-62, Spring.
  7. Jiahua Che & Yingyi Qian, . "Insecure Property Rights and Government Ownership of Firms," Working Papers 97050, Stanford University, Department of Economics.
  8. Schwab, Stewart, 1986. "Is Statistical Discrimination Efficient?," American Economic Review, American Economic Association, vol. 76(1), pages 228-34, March.
  9. David G. Blanchflower & Phillip B. Levine & David J. Zimmerman, 1998. "Discrimination in the Small Business Credit Market," NBER Working Papers 6840, National Bureau of Economic Research, Inc.
  10. Loren Brandt & Xiaodong Zhu, 2003. "What ails China?," The Region, Federal Reserve Bank of Minneapolis, issue Dec, pages 48-54, 56-5.
  11. Simon Johnson & John McMillan & Christopher Woodruff, 2001. "Courts and Relational Contracts," NBER Working Papers 8572, National Bureau of Economic Research, Inc.
  12. Simon Johnson & John McMillan & Christopher Woodruff, 2002. "Property Rights and Finance," American Economic Review, American Economic Association, vol. 92(5), pages 1335-1356, December.
  13. Glenn C. Loury, 1998. "Discrimination in the Post-Civil Rights Era: Beyond Market Interactions," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 117-126, Spring.
  14. Yuanzheng Cao & Yingyi Qian & Barry R. Weingast, 1999. "From federalism, Chinese style to privatization, Chinese style," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(1), pages 103-131, March.
  15. James J. Heckman, 1998. "Detecting Discrimination," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 101-116, Spring.
  16. William A. Darity & Patrick L. Mason, 1998. "Evidence on Discrimination in Employment: Codes of Color, Codes of Gender," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 63-90, Spring.
  17. Albert Park & Loren Brandt & John Giles, 1997. "Giving Credit Where Credit is Due: The Changing Role of Rural Financial Institutions in China," William Davidson Institute Working Papers Series 71, William Davidson Institute at the University of Michigan.
  18. John Yinger, 1998. "Evidence on Discrimination in Consumer Markets," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 23-40, Spring.
  19. Loren Brandt & Xiaodong Zhu, 2000. "Redistribution in a Decentralized Economy: Growth and Inflation in China under Reform," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 422-451, April.
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