 Interest Rates, Credit Rationing, and Investment in Developing CountriesMwanza Nkusu No 2003/063, IMF Working Papers from International Monetary Fund Abstract: This paper examines the impact of interest rates and inflation on bank loans and investment within a framework that mimics the financial sectors prevailing in most low-income developing countries. The paper emphasizes the importance of treating the lending and deposit rates of interest as distinct parameters in investment equations. The spread between the two rates is indicative of default risk and has a negative impact on incremental loan amounts associated with higher lending rates, in particular in economies with flawed institutions. The model presented in the paper highlights the importance of promoting macroeconomic stability and upgrading institutions and informational infrastructure. Keywords: WP; Credit; developing countries; interest rates; institutions; investment; deposit rate; representative bank; sound interest rate policy; investment equation; lending process; loan rate; rate of inflation; rates in a liberalized environment; expected return; Bank credit; Deposit rates; Currencies; Loans (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2003/063 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC. |
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