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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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File URL: http://mysite.avemaria.edu/RePEc/working-papers/WP1001-Martinez-Cost-of-Borrowing.pdf
File Function: First version, 2010
Download Restriction: no

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
Web page: http://www.avemaria.edu/economics

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  1. 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.
  2. Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers 98-03, C.V. Starr Center for Applied Economics, New York University.
  3. Henry, Peter B., 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Research Papers 1974, Stanford University, Graduate School of Business.
  4. Francesco Caselli, 2007. "The Marginal Product of Capital," The Quarterly Journal of Economics, MIT Press, vol. 122(2), pages 535-568, 05.
  5. Sebnem Kalemli-Ozcan & Laura Alfaro & Vadym Volosovych, 2003. "Why doesn’t Capital Flow from Rich to Poor Countries? An Empirical Investigation," Working Papers 2003-01, Department of Economics, University of Houston.
  6. Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2008. "An Equilibrium Model of "Global Imbalances" and Low Interest Rates," American Economic Review, American Economic Association, vol. 98(1), pages 358-93, March.
  7. R. Gaston Gelos, 2009. "Banking Spreads In Latin America," Economic Inquiry, Western Economic Association International, vol. 47(4), pages 796-814, October.
  8. Enrica Detragiache & Abdul Abiad & Thierry Tressel, 2008. "A New Database of Financial Reforms," IMF Working Papers 08/266, International Monetary Fund.
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