Credit Constraints, Political Instability, and Capital Accumulation

Risto Herrala and Rima Turk Ariss

No 2013/246, IMF Working Papers from International Monetary Fund

Abstract: We investigate the complex interactions between credit constraints, political instability, and capital accumulation using a novel approach based on Kiyotaki and Moore’s (1997) theoretical framework. Drawing on a unique firm-level data set from Middle-East and North Africa (MENA), empirical findings point to a large and significant effect of credit conditions on capital accumulation and suggest that continued political unrest worsens credit constraints. The results support the view that financial development measured by a relaxing of financial constraints is key to macroeconomic development.

Keywords: WP; credit limit; firm; equity capital; Capital accumulation; credit constraints; political unrest; MENA countries; firm's fixed assets; firm investment behavior; credit constraint; enterprise development; firm Age; debt amount; Credit ceilings; Credit; Real interest rates; Stocks; Middle East; North Africa; Central Asia; Sub-Saharan Africa; East Africa (search for similar items in EconPapers)
Pages: 26
Date: 2013-12-16
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Citations: View citations in EconPapers (2)

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