Showing papers by "Asli Demirguc-Kunt published in 1997"

The determinants of banking crises : evidence from developing and developed countries

Abstract: The paper studies the factors associated with the emergence of systemic banking crises in a large sample of developed and developing countries in 1980-94, using a multivariate logit econometric model. The results suggest that crises tend to erupt when the macroeconomic environment is weak, particularly when growth is low and inflation is high. Also, high real interest rates are clearly associated with systemic banking sector problems, and there is some evidence that vulnerability to balance of payments crises has played a role. Countries with an explicit deposit insurance scheme were particularly at risk, as were countries with weak law enforcement.

The Determinants of Banking Crises; Evidence From Developing and Developed Countries

Abstract: The paper studies the factors associated with the emergence of systemic banking crises in a large sample of developed and developing countries in 1980–94, using a multivariate logit econometric model. The results suggest that crises tend to erupt when the macroeconomic environment is weak, particularly when growth is low and inflation is high. Also, high real interest rates are clearly associated with systemic banking sector problems, and there is some evidence that vulnerability to balance of payments crises has played a role. Countries with an explicit deposit insurance scheme were particularly at risk, as were countries with weak law enforcement.

The Determinants of Banking Crises: Evidence from Developed and Developing Countries†

Abstract: The paper studies the factors associated with the emergence of systemic banking crises in a sample of developed and developing countries in 1981-94 using a multivariate logit econometric model. The results show that a weak macroeconomic environment with low growth and high inflation makes crises more likely; high real interest rates have also contributed to banking sector fragility, and so does vulnerability to balance-of-payments crises. Countries with an explicit deposit insurance scheme were also particularly at risk, and so were countries with weak law enforcement.

The determinants of banking crises: evidence from industrial and developing countries

Abstract: In the 1980s and 1990s several countries experienced banking crises. The authors try to identify features of the economic environment that tend to breed problems in the banking sector. They do so by economically estimating the probability of a systemic crisis, applying a multivariate logic model to data from a large panel of countries, both industrial and developing, for the period 1980-94. Included in the panel as controls are countries that never experienced banking problems. The authors find that crises tend to occur in a weak macroeconomic environment characterized by slow GDP growth and high inflation. When these effects are controlled for, neither the rate of currency depreciation nor the fiscal deficit are significant. Also associated with a high probability of crisis are vulnerability to sudden capital outflows, low liquidity in the banking sector, a high share of credit to the private sector, and past credit growth. Another factor significantly (and robustly) associated with increased vulnerability in the banking sector is the presence of explicit deposit insurance, suggesting that moral hazard has played a major role. Finally, countries with weak institutions (as measured by a"law and order"index) are more likely to experience crises.

The Determinants of Banking Crises : Evidence From Developing and Developed Countries

Abstract: The paper studies the factors associated with the emergence of systemic banking crises in a large sample of developed and developing countries in 1980–94, using a multivariate logit econometric model. The results suggest that crises tend to erupt when the macroeconomic environment is weak, particularly when growth is low and inflation is high. Also, high real interest rates are clearly associated with systemic banking sector problems, and there is some evidence that vulnerability to balance of payments crises has played a role. Countries with an explicit deposit insurance scheme were particularly at risk, as were countries with weak law enforcement.

The role of long term finance: theory and evidence

Abstract: The authors review the literature on term finance to place the research in context and discuss its implications for World Bank operations. Their project investigated whether industrial firms in developing countries suffer from a shortage of long-term credit and whether that shortage affects the firm's investment, productivity, and growth. Both issues are important in designing the World Bank's industrial lending policy because the development community is reevaluating mechanisms to make more term finance available or to lessen the constraints imposed by its absence. Using both cross-country empirical analysis and country case studies, researchers found that developing country firms use significantly less long-term debt than their industrial country counterparts, even after controlling for firm characteristics. They explain the difference in debt composition of industrial and developing countries in terms of firm characteristics, macro factors, and -most important- government subsidies, the country's level of financial development, and legal and institutional factors. They conclude that more long-term finance tends to be associated with higher productivity. Cross-country analysis of firm-level data also indicates that when there is an active stock market and when creditors and debtors are better able to enter into long-term contracts, firms seem to be able to grow faster than they could by relying only on internal resources and short-term credit. Another important finding: Government subsidies around the world have increased firms'long-term indebtedness, but there is no evidence connecting these subsidies with the firms's ability to grow faster. Indeed, in some cases subsidies were asociated with lower productivity.

The Role of Long-Term Finance: Theory and Evidence

Abstract: It appears that firms grow faster and are more productive when more long-term finance is available to them. Government subsidies do not produce the same effects and are in some cases associated with reduced productivity and growth. Caprio and Demirguc-Kunt review the literature on term finance to place the research in context and discuss its implications for World Bank operations. Their project investigated whether industrial firms in developing countries suffer from a shortage of long-term credit and whether that shortage affects the firm's investment, productivity, and growth. Both issues are important in designing the World Bank's industrial lending policy because the development community is reevaluating mechanisms to make more term finance available or to lessen the constraints imposed by its absence. Using both cross-country empirical analysis and country case studies, researchers found that developing country firms use significantly less long-term debt than their industrial country counterparts, even after controlling for firm characteristics. They explain the difference in debt composition of industrial and developing countries in terms of firm characteristics, macro factors, and - most important - government subsidies, the country's level of financial development, and legal and institutional factors. They conclude that more long-term finance tends to be associated with higher productivity. Cross-country analysis of firm-level data also indicates that when there is an active stock market and when creditors and debtors are better able to enter into long-term contracts, firms seem to be able to grow faster than they could by relying only on internal resources and short-term credit. Another important finding: Government subsidies around the world have increased firms' long-term indebtedness, but there is no evidence connecting these subsidies with the firms' ability to grow faster. Indeed, in some cases subsidies were associated with lower productivity. This paper - a product of the Finance and Private Sector Development Division, Policy Research Department - summarizes the results of a recently completed Bank project on term finance. The study was funded by the Bank's Research Support Budget under the research project Term Finance: Theory and Evidence (RPO 679-62).