The Impacts of Bank Loans on Economic Development: An Implication for East Asia from an Equilibrium Contract Theory
In: Regional and Global Capital Flows: Macroeconomic Causes and Consequences, NBER-EASE Volume 10
In this paper, we first show that middle-term and long-term commercial bank loans were less mobile forms of external liabilities but that a large fraction of external bank debt had been financed by short-term loans in a large number of developing countries. We then present a simple theoretical model where the vulnerable financial structure in developing countries might emerge as a result of efficient monitoring activities by competitive private banks. In the model, we assume both asymmetric information and liquidation risk in the international financial market. The existence of asymmetric information calls for the role of a short-term lender in monitoring borrowers' performance. However, since short-term debt can be a source of liquidity problems, total effects of efficient monitoring on economic welfare might be largely reduced when it increases the possibility of a liquidity shortfall.
(This abstract was borrowed from another version of this item.)
|This chapter was published in: ||This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number
10733.||Handle:|| RePEc:nbr:nberch:10733||Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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