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Bank Deposit Contracts Versus Financial Market Participation in Emerging Economies

  • Alexander Zimper

The financial sector of emerging economies in Africa is characterized by a non-competitive banking sector which dominates any direct participation of agents in asset markets. Based on a variant of Diamond and Dybvig's (1983) model of financial inter-mediation, we formally explain both stylized facts through market inexperience”of agents in emerging economies. While experienced agents correctly predict future market clearing equilibrium prices, inexperienced agents are ignorant about future market equilibria. As a consequence, a monopolistic banking sector can exploit these agents because their only outside option is an autarkic investment project.

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File URL: http://www.econrsa.org/node/726
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Paper provided by Economic Research Southern Africa in its series Working Papers with number 354.

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Length: 25 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:rza:wpaper:354
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  1. Alexander Zimper, 2011. "Optimal liquidity provision through a demand deposit scheme: The Jacklin critique revisited," Working Papers 208, Economic Research Southern Africa.
  2. Carmen M. Reinhart & Ioannis Tokatlidis, 2003. "Financial Liberalisation: The African Experience," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 12(Supplemen), pages 53-88, September.
  3. Eichberger, Jurgen & Harper, Ian R., 1997. "Financial Economics," OUP Catalogue, Oxford University Press, number 9780198775409, March.
  4. Zimper Alexander, 2006. "Assessing the Likelihood of Panic-Based Bank Runs," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 6(1), pages 1-19, December.
  5. Olu Ajakaiye & Mthuli Ncube & Jacqueline Macakiage, 0. "Services and Economic Development in Africa: An Overview," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 16(suppl_1), pages -12.
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