Lazy Banks? Government Borrowing and Private Credit in Developing Countries

M. Shahe Emran and Subika Farazi ()
Additional contact information
Subika Farazi: George Washington University, World Bank

Working Papers from The George Washington University, Institute for International Economic Policy

Abstract: When government borrows one dollar from domestic banking sector, how much does it reduce private credit in developing countries? There is surprisingly no reliable estimate in the literature on this. We provide robust estimates of the causal effect of government borrowing on private credit using panel data on 60 developing countries and instruments based on the structure of the political system. The point estimates indicate that a $1.00 more borrowing by governmentreduces private credit by about $1.40. We also estimate bounds on the crowding out effect under the assumption that the instruments are plausibly exogeneous. The evidence is consistent with a lazy bank model of bank behavior in developing countries.

Keywords: Government Borrowing; Private Credit; Domestic Banking Sector; Crowding Out; Private Investment; Lazy Banks (search for similar items in EconPapers)
JEL-codes: H62 O23 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2009-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
http://www.gwu.edu/~iiep/assets/docs/papers/Emran_IIEPWP2009-9.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gwi:wpaper:2009-09

Access Statistics for this paper

More papers in Working Papers from The George Washington University, Institute for International Economic Policy Contact information at EDIRC.
Bibliographic data for series maintained by Kyle Renner ().