|
on Financial Development and Growth |
| By: | Nina Boyarchenko; Domenico Giannone; Anna Kovner |
| Abstract: | We study the relationship between bank capital ratios and the distribution of future real GDP growth. Growth in the aggregate bank capital ratio corresponds to a smaller left tail of GDP—smaller crisis probability—but at the cost of a smaller right tail of growth outcomes—smaller probability of exuberant growth. This trade-off persists at horizons of up to eight quarters, highlighting the long-range consequences of changes in bank capital. We show that the predictive information in bank capital ratio growth is over and above that contained in real credit growth, suggesting importance for bank capital beyond supplying credit to the nonfinancial sector. Our results suggest that coordination between macroprudential and monetary policy is crucial for supporting stable growth. |
| Keywords: | capital ratios; growth-at-risk; quantile regressions; threshold regressions |
| JEL: | E32 G21 C22 |
| Date: | 2020–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:89123&r=all |
| By: | Sy-Hoa Ho (Institute of Research and Development, Duy-Tan University, TIMAS - Thang-Long University); Jamel Saadaoui (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We investigate short-run nonlinear impacts of bank credit on economic growth in ASEAN countries. We find an inverted L-shaped relationship and a statistically significant threshold of 96.5%. Positive effects of bank credit expansion on short-run economic growth fade away after this threshold. |
| Keywords: | Bank credit,Economic growth,Dynamic threshold estimation,ASEAN |
| Date: | 2020–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03008069&r=all |
| By: | Patrick Kaczmarczyk (Centre d'études européennes et de politique comparée) |
| Abstract: | La définition de différents modèles de croissance est la dernière innovation produite par la recherche comparative sur le capitalisme (CC). Toutefois, cette dernière explique mal tant la dynamique interne des modèles de croissance que leurs interdépendances. Cette limite tient pour partie à une conceptualisation inadéquate des firmes multinationales (FMN). Je présente ici un travail empirique montrant l’empreinte du capital international sur l’économie mondialisée. L’inclusion des FMN comme variable explicative permet alors une meilleure compréhension des résultats économiques. Je conclus par les implications d’une meilleure prise en compte des FMN pour la littérature sur les modèles de croissance. |
| Keywords: | Institutions and the macroeconomy; International business; Multinational firms; Political economy; Économie politique; Entreprises internationales; Firmes multinationales; Institutions et macro-économie |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/48v6dshhlh9r2blvjpak2prpav&r=all |
| By: | Atsushi Motohashi (Kyoto University) |
| Abstract: | This study analyzes the effects of bailout policies on the growth rate and asset prices in a small open economy with asset bubbles. In our model, bubbles stimulate investment and economic activities (so-called “crowd-in effect” of bubbles). Thus, after bubble crushing occurs, recessions follow. Under this condition, we show that as long as bubbles persist, generous bailout policies raise the economic growth rate by enhancing the crowd-in effect. When bubbles burst, the bailout policy mitigates capital losses caused by the burst and accelerates economic growth and workers’ wages compared to the no-bailout case. Since the bailout policy has growth and recovery enhancing effects, a generous bailout policy is a desirable one for governments from the perspective of taxpayers’ welfare. It should be noted, however, that a U.S. monetary policy to reduce the interest rate enlarges the size of asset bubbles in a small open economy, and further reduction of the U.S. interest rate makes the size of asset bubbles too large to be sustainable without adequate policy intervention of the small open economy; the government needs to reduce the scale of bailouts to an appropriate level in response to the U.S. interest rate reduction. |
| Keywords: | Asset Bubbles; U.S. Interest Rate Policy; Economic Growth; Collapse of Asset Bubbles; Asset Prices; Bailout Policy |
| JEL: | E32 E44 E61 F43 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:1048&r=all |
| By: | Yannic Stucki; Jacqueline Thomet |
| Abstract: | We study Switzerland's weak growth during the 1990s through the lens of the business cycle accounting framework of Chari, Kehoe, and McGrattan (2007). Our main result is that weak productivity growth cannot account for the stagnation experienced during that time. Rather, the stagnation is explained by factors that made labour and investment expensive. We show that increased labour income taxes and financial frictions are plausible causes. Holding these factors constant, the counterfactual annualized real output growth over the 1992Q2-1996Q4 period is 1.93% compared to realized growth of 0.35%. |
| Keywords: | Business cycle accounting, housing crises, stagnation, Switzerland |
| JEL: | E13 E20 E32 E65 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2020-22&r=all |
| By: | Konstantinos Dellis |
| Abstract: | Foreign direct investment (FDI) has grown strongly as a major form of international capital transfer over the past decades. Countries all over the world compete for direct investment flows, as they are considered less volatile than portfolio investment and are expected to spur long-term growth. The attraction of FDI flows depends inter alia on a number of host country attributes, including macroeconomic, geographical, and institutional variables. Additionally, the extent to which FDI inflows contribute to domestic productivity and long-term growth is conditional on characteristics that shape a countryÕs absorptive capacity. This paper uses country-level data from OECD economies over the 2005-2016 period to empirically gauge the effect that FDI inflows have on recipient country productivity and innovative performance. Furthermore, it examines the potential of threshold effects regarding the development of the host economy financial system insofar as the latter is considered a conducive force for spillover effects. In the vein of the trade-growth literature we measure the effect of the foreign R&D stock weighted by bilateral capital goods imports and FDI flows looking at Total Factor Productivity and Patents per population at the economy-level. The results indicate that the depth and efficiency of the destination country financial system provides a mediation mechanism for the realization of positive externalities associated with MNC presence. Most of the financial variables appear to facilitate knowledge spillovers above a certain threshold value irrespective of that being exogenously or endogenously determined. Finally, this exercise yields fruitful policy lessons for Greek economy. More specifically, the ongoing process of restructuring the stressed domestic financial system combined with the incremental completion of the Banking and Capital Markets Union at the EU level could serve as a conduit for speeding the catch-up process to the technological frontier. |
| Keywords: | Foreign direct investment, productivity, innovation |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:hel:greese:154&r=all |
| By: | Jack McCoy; Michele Modugno; Berardino Palazzo; Steven A. Sharpe |
| Abstract: | We develop novel macroeconomic surprise indices to identify the impact of macroeconomic releases on aggregate stock market returns over the FOMC cycle. We find that the aggregate stock prices are positively correlated with our real economic activity news index and negatively correlated with our price news index. |
| Date: | 2020–10–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2020-10-14-1&r=all |
| By: | Hasan, Iftekhar; Kwak, Boreum; Li, Xiang |
| Abstract: | This study investigates whether and how financial technologies (FinTech) influencethe effectiveness of monetary policy transmission. We examine regional-level FinTech adoption and use an interacted panel vector autoregression model to explore how the effects of monetary policy shocks change with FinTech adoption. The re-sults indicate that FinTech adoption generally enhances monetary policy transmis-sion to real GDP, bank loans, and housing prices, while the evidence of transmission to consumer prices is mixed. A subcategorical analysis shows that the enhanced effectiveness is the most pronounced in the adoption of FinTech payment, compared to that of insurance and credit. |
| Keywords: | monetary policy,financial technology,interacted panel VAR |
| JEL: | C32 E52 G21 G23 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:262020&r=all |
| By: | Urban, Jörg |
| Abstract: | Credit and business cycles play an important role in economic research, especially for central banks and supervisors. We reexamine a very useful dynamic model proposed by Kiyotaki and Moore (1997) of an economy with an endogenous credit limit. They claim that a small temporary shock generates large and persistent deviations from the steady state due to a positive feedback loop and the endogenous credit constraint. We mathematically show that contrary to common belief the model does not show amplification and persistence is visible only for a few parameter settings. Kiyotaki and Moore have linearized the model despite higher order terms being more important, rendering the Taylor expansion invalid. Further, we show that spillover effects in an economy with two distinct sectors are small. The strong amplification present in the original results, which supposedly is due to the large inter-temporal or dynamic multiplier effect, is spurious. The dynamic multiplier effect is of similar size than the static effect and in all cases numerically small. |
| Keywords: | amplification,credit constraints,credit cycles,dynamic economies,Taylor expansion |
| JEL: | E32 E37 E51 E52 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:kitwps:146&r=all |
| By: | Maurizio Trapanese (Bank of Italy) |
| Abstract: | This paper analyses the interactions between financial regulation and crises with reference to the experience of the United States in the period after the global financial crisis up to the Covid-19 emergency. In the last few years, a new regulatory system for large banks has arisen in the U.S., reversing some elements of the Dodd-Frank Act and introducing deviations from the international rules. This approach is also confirmed by some of the measures adopted in response to Covid-19. If this trend were to spread to other jurisdictions, the globally harmonized approach to regulation could break down. In the current exceptional circumstances as well, the international standards must not be breached, as they provide the resilience needed to sustain lending to the economy, and to keep banks safe. With the memory of the global financial crisis fading and the long post-crisis economic expansion coming to an end, the pressures to dilute the G-20 rules could grow stronger. The importance of maintaining a consistent approach to banking regulation needs to be emphasized. |
| Keywords: | financial crises, international regulation |
| JEL: | F53 G01 G20 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_585_20&r=all |
| By: | Fraccaroli, Nicolò (W.R. Rhodes Center for International Economics and Finance at the Watson Institute for International and Public Affairs, Brown University); Sowerbutts, Rhiannon (Bank of England); Whitworth, Andrew (Bank of England) |
| Abstract: | Since the crisis financial regulators and supervisors have been given increased independence from political bodies. But there is no clear evidence of the benefits of these reforms on the stability of the banking sector. This paper fills that void, introducing a new dataset of reforms to regulatory and supervisory independence for 43 countries from 1999-2019. We combine this index with bank-level data to investigate the impact of reforms in independence on financial stability. We find that reforms that bring greater regulatory and supervisory independence are associated with lower non-performing loans in banks’ balance sheets. In addition, we provide evidence that these improvements do not come at the cost of bank efficiency and profitability. Overall, our results show that increasing the independence of regulators and supervisors is beneficial for financial stability. |
| Keywords: | Agency independence; financial stability; banking supervision; banking regulation; regulatory agencies |
| JEL: | E58 G28 |
| Date: | 2020–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0893&r=all |
| By: | Maxime Delabarre (Sciences Po - Sciences Po) |
| Abstract: | This paper explores the common argument according to which the repeal of the Glass-Steagall Act was at the origin of the 2008 financial crisis. By arguing successively that the Act would not have covered the failing banks and that it would not have solved the "Too-big-to-fail" problem, this paper concludes by the negative. Had the Glass-Steagall act still been in place, the Global Financial crisis would not have been prevented. Mortgage policies, low capital requirements and Basel II seem to be more convincing alternatives. |
| Keywords: | Financial regulation,Glass-Steagall,Act Financial crisis,Financial conglomerates,Universal banking,Financial sector reform,Financial architecture,Financial stability |
| Date: | 2020–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03014511&r=all |
| By: | Chavaz, Matthieu (Bank of England); Elliott, David (Bank of England) |
| Abstract: | The idea of separating retail and investment banking remains controversial. Exploiting the introduction of UK ring-fencing requirements in 2019, we document novel implications of such separation for credit and liquidity supply, competition, and risk-taking via a funding structure channel. By preventing conglomerates from using retail deposits to fund investment banking activities, this separation leads conglomerates to rebalance their activities towards domestic mortgage lending and away from supplying credit lines and underwriting services to large corporates. By redirecting the benefits of deposit funding towards the retail market, this rebalancing reduces the cost of credit for households, without eroding lending standards. However the rebalancing also increases mortgage market concentration and risk-taking by smaller banks via indirect competition effects. |
| Keywords: | Bank regulation; Universal banking; Glass-Steagall; Mortgages; Syndicated lending; Competition |
| JEL: | G21 G24 G28 |
| Date: | 2020–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0892&r=all |
| By: | Van der Ghote, Alejandro |
| Abstract: | I study macro-prudential policy intervention in economies with secularly low interest rates. Intervention boosts risk-free real interest rates unintentionally, simply as a by-product of containing systemic risk in financial markets. Thus, intervention also boosts the natural rate of return in particular (i.e., the equilibrium risk-free rate that is consistent with inflation on target and production at full capacity). These results point to a novel complementarity between financial stability and macroeconomic stabilization. Complementary is sufficiently strong to generate a divine coincidence if the natural rate is secularly low, but not too low. JEL Classification: E31, E32, E44 |
| Keywords: | macro-prudential policy, natural rate of return, systemic risk |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202498&r=all |
| By: | ; Joseph E. Stiglitz |
| Abstract: | The concentration of risk within financial system is considered to be a source of systemic instability. We propose a theory to explain the structure of the financial system and show how it alters the risk taking incentives of financial institutions. We build a model of portfolio choice and endogenous contracts in which the government optimally intervenes during crises. By issuing financial claims to other institutions, relatively risky institutions endogenously become large and interconnected. This structure enables institutions to share the risk of systemic crisis in a privately optimal way, but channels funds to relatively risky investments and creates incentives even for smaller institutions to take excessive risks. Constrained efficiency can be implemented with macroprudential regulation designed to limit the interconnectedness of risky institutions. |
| Keywords: | Systemic risk; Systemically important financial institutions; Interbank markets; Financial crises; Bailouts; Macroprudential supervision |
| JEL: | E61 G01 G18 G21 G28 |
| Date: | 2020–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-98&r=all |
| By: | Arianna Agosto (Università di Pavia); Daniel Felix Ahelegbey (Università di Pavia) |
| Abstract: | Interconnectedness between economic institution and sectors, already recognised as a trigger of the great financial crisis in 2008-2009, is assuming growing importance in financial systems. In this paper we study contagion effects between corporate sectors using financial network models, in which the significant links are identified through conditional independence testing. While the existing financial network literature is mostly focused on Gaussian processes, our approach is based on discrete data. We indeed test dependence in the conditional mean (and volatility) of default counts in different economic sector estimated from Poisson autoregressive models, and in its shocks. Our empirical application to Italian corporate defaults in the 1996-2018 period reveals evidence of a high inter-sector vulnerability, especially at the onset of the global financial crisis in 2008 and in the following years. Many contagion effects between corporate sectors are indeed found in the shock component of the default count dynamics. |
| Keywords: | Financial networks; Inter-sector contagion; Poisson autoregressive models; Vector autoregressive models; Conditional Granger causality; PC-algorithm |
| JEL: | C01 C32 C58 G21 G32 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:pav:demwpp:demwp0180&r=all |
| By: | Tatiana Didier; Federico Huneeus; Mauricio Larrain; Sergio L. Schmukler |
| Keywords: | Finance and Financial Sector Development - Capital Markets and Capital Flows Finance and Financial Sector Development - Debt Markets Finance and Financial Sector Development - Financial Crisis Management & Restructuring Finance and Financial Sector Development - Securities Markets Policy & Regulation Macroeconomics and Economic Growth - Business Cycles and Stabilization Policies Macroeconomics and Economic Growth - Economic Conditions and Volatility Macroeconomics and Economic Growth - Fiscal & Monetary Policy Private Sector Development - Small and Medium Size Enterprises |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:33611&r=all |
| By: | Guzman Gonzales-Torres (Bank of Italy); Francesco Manaresi (Bank of Italy); Filippo Scoccianti (Bank of Italy) |
| Abstract: | We show that the credit crunch of 2007-2013 favoured the adoption by startups of more efficient, intangible-intensive technologies. Using data for the universe of Italian corporations, we document that the cohorts of firms born during the crisis significantly increased their share of intangible capital relative to both incumbents and comparable young firms born before the crisis. Moreover, the entry rates of intangible-intensive startups decreased by less than those of other firms. We estimate that this selection is directly linked to the tightening of credit conditions. We use a firm dynamics model to unveil the mechanism behind these patterns. Intangible goods make firms more efficient and profitable, reducing their demand of total capital and, crucially, their leverage at entry: this increases their resiliency to a financial shock. In the aggregate, a credit tightening changes the composition of new cohorts in favor of intangible-intensive producers, resulting in a persistent increase in intangible capital accumulation. |
| Keywords: | firm dynamics, intangibles, startup, financial crisis |
| JEL: | E22 E23 G32 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_582_20&r=all |
| By: | Jayasooriya, Sujith |
| Abstract: | Access to finance in the digital era is innovative with the different alternative funding approaches. In emerging markets, digital innovation of the financial sources is not limited to the own capital or borrowing from bank or credit institutions but numerous paths of financing. The purpose of the research is to recognize the alternative and innovative funding tools including borrowed from bank/credit institution, borrowed against interest from other sources, and borrowed from other sources without interest, peer-to-peer (P2P) lending -borrowed from friends and relatives without interest-, and stocks issued. The data was obtained from the survey of 2647 enterprises conducted by the UNU WIDER 2015 in Vietnam. The probit model approach for access to finance is used to analyze the impact of alternative funding tools for enterprises. The results predict the use of alternative funding tools for startup capital and investment financing of the firms separately. The results revealed that sources of start-up capital from founders’ own money, loans from friends and acquaintances, finance/investments from other enterprises, domestic bank loan, and Informal credit association (money lenders, informal bank, pawnshop) are positively and significantly affect the access to finance, while loans from family members, business associations, and international bank loans are not significant. Meanwhile, own funding, bank/credit institution, borrowed against interest from other sources, and borrowed from other sources without interest, borrowed from friends and relatives without interest have significantly affected the access to finance. In a summary, the alternative funding tools are an important source for financing SMEs in Vietnam. |
| Keywords: | Alternative funding, P2P lending, SMEs, Access to Finance |
| JEL: | L11 L22 L25 M13 |
| Date: | 2020–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:104387&r=all |
| By: | Jayasooriya, Sujith |
| Abstract: | Roles of technology, innovation and finance in Small and Medium Enterprise (SME) sector for economic development process is critical in emerging Asia. Growth, innovation, and productivity enhancement of the SME sector is always limited, and not up to its potential in Asia; Sri Lankan SME sector is not deviated from this dilemma. The paper discusses the case of project in economic enterprises development services and its approaches in supply-side management of SMEs in Sri Lanka. A baseline evaluation survey of 1200 SMEs was conducted to identify the potential and constrains for the supply side of the SMEs to promote technology adoption, innovation and financing in line with the national SME sector development policies. The results are discussed in three distinguished theses: (i) Enabling role of the technology and finance: creating enabling environment for the smooth procedures, capacity building, venture capital, financial development and banks, credit to the private sector and loans; (ii) Facilitative role of the finance and technology: application of technology and adaptation to the skill development and connections, information flow, and financial capacity; (iii) Innovative role of the finance and technology: microfinance, microinsurance, and transactions. The evidences show that lack of access to finance and technology demotes capacity building and skill training, information flow, business environment and networking of the SMEs. Hence, integrative solutions of finance and technology increase management of risks, adoption and enhanced networking for the enterprise development. These two pillars, technology and finance, become catalyst in the supply-side of the SMEs. Provoking business environment through technology adoption and financial sector development policies improving human capital, entrepreneurship and innovation enhance the performance of SMEs to thrive sustainable growth and development. |
| Keywords: | Business Environment, Finance, Innovation, SMEs, Technology |
| JEL: | L26 L53 O14 O31 O32 |
| Date: | 2020–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:104412&r=all |
| By: | Cowling, Marc; Brown, Ross; Lee, Neil |
| Abstract: | Business angels (BAs) - high net worth individuals who provide informal risk capital to firms - are seen as important providers of entrepreneurial finance. Theory and conventional wisdom suggest that the need for face-to-face interaction will ensure angels will have a strong predilection for local investments. We empirically test this assumption using a large representative survey of UK BAs. Our results show local bias is less common than previously thought with only one quarter of total investments made locally. However, we also show pronounced regional disparities, with investment activity dominated by BAs in London and Southern England. In these locations there is a stronger propensity for localised investment patterns mediated by the “thick” nature of the informal risk capital market. Together these trends further reinforce and exacerbate the disparities evident in the UK’s financial system. The findings make an important contribution to the literature and public policy debates on the uneven nature of financial markets for sources of entrepreneurial finance. |
| Keywords: | entrepreneurial finance; Business Angels; equity investment; local bias; public policy |
| JEL: | L81 |
| Date: | 2020–12–08 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:107814&r=all |
| By: | Yulia Moiseeva (University of St Andrews) |
| Abstract: | I study a novel two-way feedback between credit and labor market frictions. Running from credit to labor markets, amplitude in capital demand induced by collateral constraints spills over onto labor demand due to the complementarity of capital and labor; and, furthermore, credit frictions raise effective financial hiring costs, inducing firms to delay hiring in recessions. Running back from labor to credit markets, search frictions admit a degree of inflexibility in wages which induces greater volatility of net worth, via the wage bill, which then spills over onto capital demand. Together, these considerably amplify and propagate labor and capital market dynamics. |
| Keywords: | credit frictions, collateral constraints, search frictions, unemployment, wages |
| JEL: | E22 E24 E32 J64 |
| Date: | 2020–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:san:wpecon:2007&r=all |
| By: | Oliver Denk; Priscilla Fialho |
| Abstract: | Private debt owed to banks and other financial institutions has been at unprecedented high levels. This paper studies the role of these high levels of debt for workers, based on an assembled micro-dataset that harmonises household surveys from 29 OECD countries. High debt is found to be associated with two bad outcomes for workers: weaker wage growth and an increased risk that they encounter a sharp fall in their wages. People who tend to be particularly affected are the low-skilled, individuals with unstable employment paths and financially vulnerable households. Strong bank supervision and macroprudential measures that aim to avoid credit overexpansion are two policies that can improve the links of private debt with labour income growth and risk. Overall, the evidence in this paper points to finance as one factor behind wage stagnation and the social divisions in today’s labour markets. |
| Keywords: | credit, finance, income growth, income risk, labour earnings |
| JEL: | E24 G21 G28 J31 |
| Date: | 2020–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1640-en&r=all |
| By: | Abhijit Banerjee; Esther Duflo; Garima Sharma |
| Abstract: | This paper studies the long-run effects of a “big-push” program providing a large asset transfer to the poorest Indian households. In a randomized controlled trial that follows these households over 10 years, we find positive effects on consumption (1 SD), food security (0.1 SD), income (0.3 SD), and health (0.2 SD). These effects grow for the first seven years following the transfer and persist until year 10, consistent with the alleviation of a poverty trap. One main channel for persistence is that treated households take better advantage of opportunities to diversify into lucrative wage employment, especially through migration. |
| JEL: | I32 I38 O12 O15 O22 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28074&r=all |
| By: | Nahla Dhib (Université Côte D'Azur, CNRS, LJAD (France)); Arvind Ashta |
| Abstract: | The microcredit literature indicates that progressive lending should reduce default rates but that it may lead to over-indebtedness. In this study, we show that progressive lending may be safe over a range of loan sizes, beyond which a rational borrower would indulge in a strategic default. This range of loan sizes may be dependent on borrower characteristics (risk-taking, self-confidence, productivity, interest rates, subsistence needs) as well as the Microfinance Institution's strategy. Many crowdfunding sites are using artificial intelligence to assess borrower risk through social ratings. We are arguing that production functions of the borrowers also need to be added. |
| Date: | 2020–11–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03001840&r=all |