We present a theoretical model of an imperfectly competitive loans market that is suitable for emerging economies in Africa. The model allows for variation in both the level of contract enforcement (the quality of governance) and the degree of market segmentation (the level of ethnic fractionalization). The model predicts a specific form of nonlinearity in the effects of these variables on loan default. Empirical analysis using African panel data for 110 individual banks in 28 countries over 2000–08 provides strong evidence for these predictions. Our results have important implications for the conditions under which policy reform will enhance financial development.
This is an output from the ‘Politics, Finance and Growth’ Project
Andrianova, S. , Baltagi, B. H., Demetriades, P. and Fielding, D. (2017), Ethnic Fractionalization, Governance and Loan Defaults in Africa. Oxford Bulletin of Economics and Statistics 79: 435-462
Ethnic Fractionalization, Governance and Loan Defaults in Africa
Published 8 February 2017