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Loans, risks, and growth: The role of government and public banking in Paraguay

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  • Insfrán Pelozo, José Ani­bal

Abstract

In Paraguay, banks are the center of the financial sector and provide the main source of external financing for corporations and small companies. Therefore, their behavior as credit providers has important effects on business investments. This paper presents a model that illustrates this fact and explains how it can be applied to any less-developed economy with a similar financial sector. In this model, the financial sector (bank loans) affects the long-run growth of the economy through the changes in the probability of loans repayment and other risks. In addition it is shown that governments have an important double role in the financial sector, providing adequate regulation and reducing specific identified market failures.

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  • Insfrán Pelozo, José Ani­bal, 2008. "Loans, risks, and growth: The role of government and public banking in Paraguay," The Quarterly Review of Economics and Finance, Elsevier, vol. 48(2), pages 307-319, May.
  • Handle: RePEc:eee:quaeco:v:48:y:2008:i:2:p:307-319
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    1. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
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    5. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    6. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
    7. Hannan, Timothy H, 1991. "Foundations of the Structure-Conduct-Performance Paradigm in Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(1), pages 68-84, February.
    8. Santomero, Anthony M, 1984. "Modeling the Banking Firm: A Survey," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 576-602, November.
    9. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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