Reform, FDI and Economic Growth: Tale of the Tortoise and the Hare

Our main interest is the impact of the choice of the speed of economic reform on economic growth. We estimate a system of 3 equations where economic growth, economic reform and FDI are jointly determined. We find that new reforms affect economic growth negatively but attract FDI, whereas the level of past reform leads to higher growth. This means that the immediate adjustment cost of new reforms is counterbalanced by an immediate increase in FDI inflows and higher growth in the future through a higher level of past reform. Reform reversals contribute to lower growth. We use the model to simulate the impact of big bang reform and gradualist reform on economic growth. This is only meaningful in the presence of reform reversals, which requires aggregate uncertainty about the appropriate reform path. Using the coefficients from the empirical model we find that even relatively small ex ante reversal probabilities suffice to tilt the balance in favour of gradualism. This could be reinforced by the shortsightedness of policymakers, but may be moderated by voter myopia.http://deepblue.lib.umich.edu/bitstream/2027.42/40116/3/wp730.pd

Passive Creditors

Creditors are often passive because they are reluctant to show bad debts on their own balance sheets. We propose a simple general equilibrium model to study the externality effect of creditor passivity. The model yields rich insights in the phenomenon of creditor passivity, both in transition and developed market economies. Policy implications are deduced. The model also explains in what respect banks differ from enterprises and what this implies for policy. Commonly observed phenomenons in the banking sector, such as deposit insurance, lender of last resort facilities, government coordination to work out bad loans and special bank closure provisions, are interpreted in our framework.http://deepblue.lib.umich.edu/bitstream/2027.42/40123/3/wp737.pd

A ‘de Soto Effect’ in Industry? Evidence from the Russian Federation

Russia’s tremendous inter-regional variation in the pace of industrial land rights reform has meant that geography has helped determine the current tenure status of firms’ production plots as much as any individual firm characteristics. By exploiting both this difference in the pace with which land reform has been carried out across Russia’s federal subjects and a unique micro-level dataset, we present evidence strongly consistent with the proposition that more secure rights to land facilitate access to external financing. This finding is confirmed by other evidence from the survey that points to private land serving as an important source of collateral for Russian lenders and borrowers.industrial land; property rights; Russia; collateral

Passive Creditors

Creditors are often passive because they are reluctant to show bad debts on their own balance sheets. We propose a simple general equilibrium model to study the externality effect of creditor passivity. The model yields rich insights in the phenomenon of creditor passivity, both in transition and developed market economies. Policy implications are deduced. The model also explains in what respect banks differ from enterprises and what this implies for policy. Commonly observed phenomenons in the banking sector, such as deposit insurance, lender of last resort facilities, government coordination to work out bad loans and special bank closure provisions, are interpreted in our framework.creditor passivity, bankruptcy, arrears, bad loans, bank closure

Passive Creditors

Creditors are often passive because they are reluctant to show bad debts on their balance sheets. We propose a simple general equilibrium model to study the externality effect of creditor passivity. The model yields rich insights in the phenomenon of creditor passivity, both in transitional and developed market economies. Policy implications are deduced. The model also explains in what respect banks differ from enterprises and what this implies for policy. Commonly observed phenomena in the banking sector, such as deposit insurance, lender of last resort facilities, government coordination to work out bad loans and special bank closure provisions, are interpreted in our framework.creditor passivity, bankruptcy, arrears, bad loans, bank closure

Sophisticated Discipline in Nascent Deposit Markets: Evidence from Post-Communist Russia

Using a database from post-communist, pre-deposit-insurance Russia, we demonstrate the presence of quantity-based sanctioning of weaker banks by both firms and households, particularly after the financial crisis of 1998. Evidence for the standard form of price discipline, however, is notably weak. Estimating the deposit supply function, we show that, particularly for poorly capitalized banks, interest rate increases exhibit diminishing, and eventually negative, returns in terms of deposit attraction, a finding consistent with depositors interpreting the deposit rate itself as a signal of otherwise unobserved bank-level risk.http://deepblue.lib.umich.edu/bitstream/2027.42/57209/1/wp829 .pd

Bank competition and outreach: evidence from Turkey

In light of the importance of banking sector outreach and given concerns that competition may adversely affect it, this study explores the empirical linkage between banking structure and outreach in Turkey for the period 1988-2010. Bank-, province-, and bank-province-level estimation results indicate that competition is in general conducive to the outreach of banks. We do not find evidence for collusive behavior among banks when they have multimarket contact. At the province level, the presence of foreign-owned banks is associated with higher outreach, while at the bank-province level, we observe that outreach of domestic banks exceeds that of foreign banks. Together, these results suggest that there are procompetitive spillover effects from foreign banks to their domestic counterparts

Bank Supervision Russian style: Rules versus Enforcement and Tacit Objectives

We focus on the conflict between two central bank objectives, namely individual bank stability and systemic stability. We study the licensing policy of the Central Bank of Russia (CBR) in 1999-2002. Banks in poorly banked regions, banks that are too big to be disciplined adequately and banks that are active on the interbank market enjoy protection from license withdrawal, showing a tacit concern for systemic stability. The CBR is also reluctant to withdraw licenses from banks that violate the individuals’ deposits to capital ratio, because this conflicts with the tacit CBR objective to secure depositor trust and systemic stability.http://deepblue.lib.umich.edu/bitstream/2027.42/40164/3/wp778.pd