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Bank Deposit Contracts Versus Financial Market Participation in Emerging Economies

Alexander Zimper

No 201334, Working Papers from University of Pretoria, Department of Economics

Abstract: The financial sector of emerging economies in Africa is characterized by a non-competitive banking sector which dominates any direct participation of agents in asset markets. Based on a variant of Diamond and Dybvig's (1983) model of financial intermediation, we formally explain both stylized facts through market inexperience of agents in emerging economies. While experienced agents correctly predict future market clearing equilibrium prices, inexperienced agents are ignorant about future market equilibria. As a consequence, a monopolistic banking sector can exploit these agents because their only outside option is an autarkic investment project.

Keywords: Emerging Economies; Demand Deposit Contract; Asset Market; Asymmetric Information (search for similar items in EconPapers)
JEL-codes: O16 G14 G21 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2013-07
New Economics Papers: this item is included in nep-afr, nep-ban, nep-cta, nep-cwa and nep-mic
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Related works:
Journal Article: Bank-Deposit Contracts Versus Financial-Market Participation in Emerging Economies (2015) Downloads
Working Paper: Bank Deposit Contracts Versus Financial Market Participation in Emerging Economies (2013) Downloads
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