Skip to main content
Article thumbnail
Location of Repository

The African Credit Trap

By Svetlana Andrianova, Badi H. Baltagi, Panicos O. Demetriades and David Fielding

Abstract

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

Topics: African financial under-development, African credit markets, Dynamic panel data
Publisher: Dept. of Economics, University of Leicester
Year: 2010
OAI identifier: oai:lra.le.ac.uk:2381/8303

Suggested articles

Citations

  1. (2005). A Finite Sample Correction for the Variance of Linear Efficient Two-Step doi
  2. (1997). Africa’s Growth Tragedy: Policies and Ethnic Divisions,” doi
  3. (2004). Does One Size Fit all?: doi
  4. (2006). Finance, doi
  5. (2009). Governance Matters VIII: Aggregate and Individual Governance Indicators 1996-2008,” The World Bank, Policy Research Working Paper 4978. doi
  6. (2008). Government Ownership of Banks, doi
  7. (1998). Initial Conditions andMoment Restrictions in Dynamic Panel-Data Models,” doi
  8. (2007). Making Finance Work for Africa. The World Bank, doi
  9. (1997). Microeconomics of Banking.
  10. (1979). Monopolistic Competition with Outside Goods,” doi
  11. Senbetm (2010): “African Financial Systems: a Review,” SSRN working paper id 1569613.
  12. (1991). Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,”Review doi

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.