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Loan Defaults in Africa

Svetlana Andrianova (), Badi Baltagi () and Panicos Demetriades ()

No 11/36, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: African financial deepening is beset by a high rate of loan defaults, which encourages banks to hold liquid assets instead of lending. We put forward a novel theoretical model that captures the salient features of African credit markets which shows that equilibrium with high loan defaults and low lending can arise when contract enforcement institutions are weak, investment opportunities are relatively scarce and information imperfections abound. We provide evidence using a panel of 110 banks from 29 African countries which corroborates our theoretical predictions.

Keywords: Financial development; Africa (search for similar items in EconPapers)
JEL-codes: G21 O16 (search for similar items in EconPapers)
Date: 2011-08
New Economics Papers: this item is included in nep-afr, nep-ban, nep-cta and nep-dev
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