Entrepreneurship in post‐conflict transition1

We examine new self‐employment entry and its viability in Bosnia and Herzegovina, using a rich household survey for the years 2001–2004. We find that wealthier households are more likely to engage in viable self‐employment and create employment suggesting an important role for financing constraints. Specifically, although having an existing bank relationship is not significantly related to the entry decision, it is positively related to the survival for new entrepreneurs and their employment creation. We also find a non‐linear relationship between remittances and entry in that individuals not receiving remittances are more likely to enter self‐employment; but, if they do receive them, the likelihood of starting a business increases in the fraction of wealth received from domestic remittances. Finally, people working in the informal sector are more likely to become viable entrepreneurs, particularly those provided with loans from micro‐credit organizations. These findings support the perception of the informal sector as an incubator for formal self‐employment in the early years of transition.     

Credits and non-interest rate determinants of loan demand: a Spanish case study

This article uses bivariate probit analysis to model the potential relationship between the condition of being credit-unconstrained and holding loans as well as to ascertain determinants of a household being credit-unconstrained and likely holding consumer and real-estate loans. It documents that family size, education, permanent and transitory incomes, among others, affect Spanish households’ desire and capacity to hold loans. Furthermore, these factors were found to affect demands for real-estate and consumer loans differently. In general, the above and other results from this research provide insights that would interest credit consumers, credit suppliers, and policy makers in Spain.     

A QUEST FOR UNFETTERED CREDIT: HOW MONETARY POLICY DRIVES CREDIT RISK TRANSFER OF STRUCTURED FINANCE PRODUCTS

This study examines the effects of monetary policy contractions on bank loans to households and firms and instruments in three different credit risk transfer (CRT) capital markets over two separate time periods (1995–2006 and 2007–2015). The findings show that in both periods, banks decrease business lending but increase lending to consumers through a combination of mortgage, auto, credit card, and student loans from more liquidity produced by consumer‐related CRT activity. Additional results reveal relative CRT movements toward securitized mortgages from bank mortgage debt over both periods and toward securitized and insured business loans from bank business debt in the latter period, which suggest vulnerabilities among interconnected credit markets. (JEL E44, E51, G21, G23)     

SOME NEW EVIDENCE ON COMPETITION IN PAYDAY LENDING MARKETS

A critical question in the policy debate about payday lending is whether other financial institutions can plausibly provide attractive and lower‐priced substitutes for standard payday loans. I present several new pieces of evidence addressing the question, focusing on whether credit unions, which are often held as the strongest potential competitors to payday lenders, do (or might) viably compete in the payday loan market. National payday loan offerings by credit unions show that very few credit unions currently offer payday loans. Credit union industry reports suggest that those credit unions offering such loans seem unwilling or unable to undercut substantially the prevailing prices set by payday lenders. Those industry reports also reveal that lower‐priced credit union loans generally ration riskier borrowers out of the market by imposing greater restrictions on approval and repayment; risk‐adjusted prices for credit union payday loans may not be lower at all. Survey evidence suggests that most current payday borrowers prefer higher‐priced but less restrictive standard payday loans to lower‐priced but more restrictive alternatives offered by credit unions. The combined demand‐ and supply‐side evidence suggests that one should not expect credit unions (or by extension banks) to offer lower‐priced, higher‐quality alternatives for consumers who currently use payday loans. (JEL G2, L0, L5)     

Revisiting the Effects of Remittances on Bank Credit: A Macro Perspective

We investigate the effect of remittances on bank credit in developing countries. Understanding this link is important in view of the growing relevance of remittances as a source of external finance and of the beneficial impact that financial intermediation is likely to have on economic growth. Our contribution is twofold. First, we present a theoretical model of bank credit in a hypothetical remittances‐receiving country where: (1) the banking sector is imperfectly competitive; and (2) bank rates change infrequently because of the presence of adjustment costs. We show that in equilibrium, the relationship between remittances and bank‐credit is likely to be non‐linear. Second, we look at the evidence using a panel data set for a large group of developing and emerging economies over the period 1970–2009. We find that at initially low levels of remittances, an increase in remittances reduces the volume of credit extended by banks. However, at sufficiently high levels of remittances, the effect becomes positive. The turning point of the relationship occurs at a level of remittances of about 2.5% of GDP, which would imply that approximately 50% of our sample lies to each side of this threshold.     

International migration and informal social protection in rural Mozambique

This paper uses a unique household survey from two southern regions in Mozambique to examine the extent to which dispatching family labour abroad is a source of informal social protection for households left behind. We do so by studying the relation between migration, remittances and participation in groups that provide informal social services to migrant-sending communities. We distinguish between a range of community associations related to insurance, credit and production provision and we further correct for the endogenous choice of group membership. Results show that migration associated with remittances increase community group participation. In particular, while there is no significant relationship with group membership related to credit or self-help activities, remittance recipients are more likely to join groups that provide insurance. These findings point to the role of migration as a source of social protection for migrant-sending communities at origin.     

Remittances,financial development,and growth

Despite the increasing importance of remittances in total international capital flows, the relationship between remittances and growth has not been adequately studied. This paper studies one of the links between remittances and growth, in particular how local financial sector development influences a country's capacity to take advantage of remittances. Using a newly-constructed dataset for remittances covering about 100 developing countries, we find that remittances boost growth in countries with less developed financial systems by providing an alternative way to finance investment and helping overcome liquidity constraints. This finding controls for the endogeneity of remittances and financial development, does not depend on the particular measure of financial sector development used, and is robust to a number of robustness tests, including threshold estimation. We also provide evidence that there could be an investment channel trough which remittances can promote growth especially when the financial sector does not meet the credit needs of the population.     

Information and credit access: using bankruptcy as a signal

Legally, a bankruptcy flag can appear on an individual's credit report for up to 10 years after the filing. The flag affects an individual's credit score, and in turn, an individual's access to credit. In this article, we investigate how the bankruptcy flag affects access to credit along three dimensions–loan acceptance, the price of the loan as is determined by the interest rate, and the amount of credit the household receives. Using the Panel Study of Income Dynamics and the Survey of Consumer Finances, we estimate a series of two-stage models corrected for sample selection and adjusted to account for the household's level of creditworthiness. We find that the bankruptcy flag increases the probability of being denied access to a loan. The flag also increases interest rates for unsecured loans and lowers the credit limits available to households. The findings have important implications with respect to current bankruptcy code and the impact that information, such as the bankruptcy flag, can have on the efficiency of the credit markets.     

Microfinance spillovers: A model of competition in informal credit markets with an application to Indian villages

Despite widespread interest in the development of microfinance, spillover effects on the non-using population and redistributive issues remain largely unexplored. I study a competition game between microfinance institutions (MFIs) offering joint-liability loans and moneylenders offering individual loans in presence of adverse selection. I show that one unintended consequence of the entry of a microfinance sector in local credit markets can be to trigger an increase in the equilibrium informal interest rate, because MFIs tend to attract a disproportionately-safe share of the borrower pool away from incumbent moneylenders. The existence of such composition externality depends crucially on the size of the microfinance sector and the risk composition of the borrower pool. The model predicts a non-linearly increasing relationship between informal interest rates and MFIs' capacity in relatively safe credit markets, and no relationship in risky villages. I show evidence supporting these predictions, using a first-hand panel database that records all credit transactions over 8 years for a sample of about 1000 households living in Indian villages with extensive space and time variation in the size of their microfinance sector.     

Migration,remittances and human capital investment in Kenya

This paper investigates the relationship between international migration, remittances, and human capital investment in Kenya. We use household‐level data from the 2009 Kenya Migration Household Survey (which was part of the Africa Migration Project) to test our hypothesis and uncover a positive and significant relationship between the amount of international remittances a household receives and the amount of expenditures allocated to education (for all levels of education). We consider various robustness checks and find that our results hold up to various specifications, including an instrumental variable approach.     

DOES EDUCATION LOAN DEBT INFLUENCE HOUSEHOLD FINANCIAL DISTRESS? AN ASSESSMENT USING THE 2007–2009 SURVEY OF CONSUMER FINANCES PANEL

Families with student loans in 2007 have higher levels of financial distress than families without such loans, and these families also transitioned to financial distress at higher rates during the early stages of the Great Recession. This correlation persists once we control for a host of other demographic, work‐status, and household balance sheet measures. Families with an average level of student loans were 3.1 percentage points more likely to be 60 days late paying bills and 3 percentage points more likely to be denied credit. Families with other types of consumer debt were no more or less likely to be financially distressed. (JEL D14, H81, I22)     

Interest rate pass-through in Morocco: Evidence from bank-level survey data

We investigate the relationship between banks’ marginal cost and retail lending rates in Morocco. The data covers the rates of new business loans for four market segments broken down by institutional sector between 2006Q2 and 2016Q4. We examine the pass-through mechanism using recently developed heterogeneous panel cointegration framework. Our findings suggest that there is a high degree of pass-through heterogeneity over bank products. The weak adjustment for short-term credit facilities and consumption loans can be explained by credit risk compensation allowing banks to reduce their exposition to systemic risks. Corporate loans are priced more competitive than household and individual entrepreneur products, suggesting that negotiation power or the competition from the borrower side matters. Overall, our results indicate that banking market contestability has improved during the last decade.     

Financial Globalization,Social Exclusion and Financial Crisis

This paper suggests one set of mechanisms that ties financial globalization processes to local dynamics of financial inclusion or exclusion. Specifically, this paper explores the worldwide reconsideration of financial firms’ strategies that has accompanied financial globalization. It is shown that the neoliberal and asymmetric‐information approaches to credit markets and financial crises in developing economies overlook these dimensions of financial globalization because of their tendency to focus on representative credit markets. Banks’ strategic shift has led to the global homogenization and stratification of financial practices—and this in turn has been a key driver of processes of financial exclusion. Financial exclusion then involves bifurcation within financial markets, so that different markets serve different portions of the household and business population. This analysis suggests a reconstruction of Minsky’s microfoundational model of the origins of financial fragility and crisis, which shifts from Minsky’s emphasis on a representative borrower–lender relationship to a situation of borrower–lender relationships in bifurcated markets.     

Does ownership concentration affect banks’ credit risk? Evidence from MENA emerging markets

The purpose of this study is to explore the impact of ownership concentration on banks’ credit risk. The study employs a dynamic panel approach using data from 98 banks listed in the 10 Middle East and North African (MENA) emerging stock markets between 2003 and 2016. To better understand the nature of the relationship between ownership concentration and bank credit risk and how this relationship is shaped by the recent financial crisis, we conducted a pre- and postcrisis analysis. Our findings document a positive relationship between ownership concentration and nonperforming loans in the precrisis period, which surprisingly reverses during the postcrisis period. We argue that the reversal of this relationship is driven by changes in controlling shareholders’ risk aversion, behavior, and attitude prompted by the financial crisis. Given that central banks are entrusted with forestalling banks’ failure, incorporating ownership concentration, as a fundamental determinant of banks’ credit risk, is crucial to anticipate future financial calamities. Our findings highlight the gravity of agency problems in emerging MENA markets. Reinforcing firm-level as well as country-level governance mechanisms is crucial to restore a sound banking system, enhance markets’ integrity, and increase investors’ confidence.     

Remittances and bond yield spreads in emerging market economies

This paper tests whether remittances reduce bond yield spreads in emerging market economies. Drawing upon instrumental variable techniques, our paper reveals that remittance inflows significantly reduce bond yield spreads. This result is robust to different specifications, alternative instrumentation techniques, additional control variables, and the use of credit default swap spreads in place of bond spreads. In addition, we find that the effect of remittances on spreads (i) is larger in (more) poorly developed financial systems, (ii) increases with the degree of trade openness, (iii) is larger in low fiscal space regimes, and (iv) is larger in nonremittance‐dependent countries. The paper concludes that policies that improve the measurement of remittance inflows and reduce their transfer costs or that enable countries to develop securitization of remittances and diaspora bonds could help emerging market economies to leverage remittances for international capital market access.     

The Effects of Screening and Monitoring on Credit Rationing of SMEs

In this paper, we seek to empirically assess which determinants of the capability and incentives of banks to screen and monitor firms are significant in explaining credit rationing to Italian SMEs. After testing for the presence of non‐random selection bias and the potential endogeneity of some determinants of interest, the probit model results we obtain suggest that the average banking size and the multiple banking relationship phenomenon are statistically significant factors affecting credit rationing, presumably through their impact on the aforementioned banks' capability and incentives. Other potential determinants of banks' incentives to monitor and screen, such as local banking competition and firm' capacity to collateralize, are never significant. However, when we split the sample according to the level of competition in credit markets, we find that the estimated marginal effects of all significant determinants of interest are larger in absolute value than those obtained when using the whole sample.     

INTERNATIONAL CREDIT CHANNEL OF MONETARY POLICY: AN EMPIRICAL NOTE

A longstanding macroeconomic issue is how monetary policy affects the real economy. There are economists placing an emphasis on the role of bank lending in monetary transmission. Their view, called the credit view, is that a monetary tightening shifts the supply schedule of bank loans left, thereby forcing bank‐dependent borrowers to cut back on expenditures. In the literature, the credit view is typically studied in a closed‐economy context. In reality, however, banks make international loans through their overseas branches and subsidiaries. This suggests that the credit view should be studied in an open‐economy context. This paper proposes the international credit view: a monetary‐policy shock originated in one country propagates to another through banks’ reallocation of funds between the two countries. For testing the hypothesis, Australia and New Zealand provide an excellent case to study. This is because Australian‐owned banks dominate the banking market in New Zealand. This paper aims to test the international credit view within a framework of vector auto‐regression models. A significant and robust finding is that the supply schedule of loans shifts left in New Zealand after a monetary tightening in Australia.     

Explaining the effect of financial development on the quality of property rights

Empirical evidence suggests that financial development can catalyze property rights reforms. This paper offers a theory of financial markets to explain these facts defining the relationship. The explanation is based on a simple trade‐off between the costs and the benefits of securing property. Securing the right to property at a cost allows agents to post collateral against loans. However, the benefits of collateral vary according to the existing credit market conditions, which we take into account in the tradeoff between the costs and the benefits of securing property rights along the path of financial development to explain the conditions under which financial development can create incentives for better property rights institutions.     

Migrants’ international transfers and educational expenditure

The primary objective of this article is to cast some light upon the relationship between education expenditure and the volume of remittances sent to Albania from abroad by international migrants. To assess the existence of an education enhancing effect of remittances, an Engel curve framework is used. In addition, quintile regression analysis is employed to investigate whether migrants’ remittances have a differentiated effect on various quantiles of the conditional distribution of education consumption. The two main empirical findings are that household income has a positive and well‐determined impact on education expenditure, whereas international transfers do not influence education spending.     

Migration and rural poverty in China

We analyze two complementary household datasets from China's poor areas to examine whether the poor migrate and whether migration helps the poor. We find an inverted-U-shaped relationship between household endowments and the likelihood of migration. Over time, the poor are more likely to migrate. Using household panel data and taking prior village migration networks as an instrument, we find that having a migrant increases a household's income per capita by 8.5 to 13.1 percent, but that the overall impact on poverty is modest because most poor people do not migrate. Migrants remit a large share of their income and the amount of these remittances is responsive somewhat to the needs of other family members. Journal of Comparative Economics 33 (4) (2005) 688–709.