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Creditor Protection and Banking System Development in India

  • Gregory James


    (Dept of Economics, Loughborough University)

  • Simon Deakin


    (Centre for Business Research, University of Cambridge)

  • Panicos Demetriades


    (Dept of Economics, University of Leicester)

We use a new legal dataset tracking changes in creditor protection law over several decades to study the impact of legal reforms on banking system development in India. Cointegration analysis is used to show that the strengthening of creditor rights in relation to the enforcement of security interests in the 1990s and 2000s led to an increase in bank credit. We show that the change in the law was not endogenous to trends in stock market development and GDP per capita, and that the direction of causation ran from legal reform to banking development, rather than the reverse.

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Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2009_12.

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Date of creation: Aug 2009
Date of revision: Aug 2009
Handle: RePEc:lbo:lbowps:2009_12
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  1. Priya P. Lele & Mathias M. Siems, 2007. "Shareholder Protection: A Leximetric Approach," Money Macro and Finance (MMF) Research Group Conference 2006 170, Money Macro and Finance Research Group.
  2. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
  3. Panicos O. Demetriades & Kul B. Luintel, 1997. "The Direct Costs Of Financial Repression: Evidence From India," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 311-320, May.
  4. Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007. "Private credit in 129 countries," Journal of Financial Economics, Elsevier, vol. 84(2), pages 299-329, May.
  5. Panicos O. Demetriades & Khaled A.Hussein, 1995. "Does Financial Development Cause Economic Growth? Time-Series Evidence from 16 Countries," Keele Department of Economics Discussion Papers (1995-2001) 95/13, Department of Economics, Keele University.
  6. Arestis, Philip & Demetriades, Panicos O & Luintel, Kul B, 2001. "Financial Development and Economic Growth: The Role of Stock Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(1), pages 16-41, February.
  7. Simon Deakin & Priya Lele & Mathias Siems, 2007. "The Evolution of Labour Law: Calibrating and Comparing Regulatory Regimes," ESRC Centre for Business Research - Working Papers wp352, ESRC Centre for Business Research.
  8. Armour, John & Deakin, Simon & Sarkar, Prabirjit & Siems, Mathias & Singh, Ajit, 2007. "Shareholder protection and stockmarket development: an empirical test of the legal origins hypothesis," MPRA Paper 39055, University Library of Munich, Germany.
  9. John Armour & Priya Lele, 2008. "Law, Finance, and Politics: The Case of India," ESRC Centre for Business Research - Working Papers wp361, ESRC Centre for Business Research.
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