The African Credit Trap
We put forward a plausible explanation of African financial underdevelopment in the form of a bad credit market equilibrium. Utilising an appropriately modified IO model of banking, we show that the root of the problem could be unchecked moral hazard (strategic loan defaults) or adverse selection (a lack of good projects). We provide empirical evidence from a large panel of African banks which suggests that loan defaults are a major factor inhibiting bank lending when the quality of regulation is poor. We also find that once a threshold level of regulatory quality has been reached, improvements in the default rate or regulatory quality do not matter, providing support for our theoretical predictions.
|Date of creation:||May 2010|
|Date of revision:||May 2010|
|Contact details of provider:|| Postal: |
Phone: +64 3 479 8725
Fax: 64 3 479 8171
Web page: http://www.business.otago.ac.nz/econ
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Richard Blundell & Steve Bond, 1995.
"Initial conditions and moment restrictions in dynamic panel data models,"
IFS Working Papers
W95/17, Institute for Fiscal Studies.
- Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
- R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
- Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
- Svetlana Andrianova & Panicos Demetriades & Anja Shortland, 2002.
"Government Ownership of Banks, Institutions, and Financial Development,"
Discussion Papers in Economics
02/13, Department of Economics, University of Leicester, revised Aug 2006.
- Andrianova, Svetlana & Demetriades, Panicos & Shortland, Anja, 2008. "Government ownership of banks, institutions, and financial development," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 218-252, February.
- Svetlana Andrianova & Panicos Demetriades & Anja Shortland, 2006. "Government Ownership of Banks, Institutions, and Financial Development," WEF Working Papers 0011, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
- Paul Milgrom., 1987.
"Adverse Selection without Hidden Information,"
Economics Working Papers
8742, University of California at Berkeley.
- Rioja, Felix & Valev, Neven, 2004. "Does one size fit all?: a reexamination of the finance and growth relationship," Journal of Development Economics, Elsevier, vol. 74(2), pages 429-447, August.
- Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
- Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, June.
When requesting a correction, please mention this item's handle: RePEc:otg:wpaper:1004. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Janet Bryant)
If references are entirely missing, you can add them using this form.