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Cost of Borrowing, Institutional Quality, and Capital Openness

  • Gabriel Martinez


    (Department of Economics, Ave Maria University)

Does improving institutional quality lower borrowing costs or raise them? Better institutions the marginal productivity of capital, the demand for funds and the interest rate. They may also lending risks, raising the supply of funds and lowering the cost of capital. Using data from 100 this paper shows that the impact of institutional quality on borrowing costs depends on whether country has favored improving financial institutions, which is proxied by its openness to capital flows, controlling for a host of factors. These results are robust to changes in definitions and specification.

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Paper provided by Ave Maria University, Department of Economics in its series Working Papers with number 1001.

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Length: 30 pages
Date of creation: Jul 2010
Date of revision:
Handle: RePEc:avm:wpaper:1001
Contact details of provider: Postal: 5050 Ave Maria Boulevard, Ave Maria, Florida 34142-9505
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  1. repec:tpr:qjecon:v:122:y:2007:i:2:p:535-568 is not listed on IDEAS
  2. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  3. Henry, Peter B., 2006. "Capital Account Liberalization: Theory, Evidence, and Speculation," Research Papers 1951, Stanford University, Graduate School of Business.
  4. Francesco Caselli & James Feyrer, 2005. "The Marginal Product of Capital," NBER Working Papers 11551, National Bureau of Economic Research, Inc.
  5. Ricardo J Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2006. "An equilibrum model of "global imbalances" and low interest rates," BIS Working Papers 222, Bank for International Settlements.
  6. Gaston Gelos, 2006. "Banking Spreads in Latin America," IMF Working Papers 06/44, International Monetary Fund.
  7. Chinn, Menzie David & Ito, Hiro, 2005. "What Matters for Financial Development? Capital Controls, Institutions, and Interactions," Santa Cruz Department of Economics, Working Paper Series qt5pv1j341, Department of Economics, UC Santa Cruz.
  8. Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2005. "Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation," NBER Working Papers 11901, National Bureau of Economic Research, Inc.
  9. Abdul Abiad & Enrica Detragiache & Thierry Tressel, 2010. "A New Database of Financial Reforms," IMF Staff Papers, Palgrave Macmillan, vol. 57(2), pages 281-302, June.
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