Baldagi article on imperfect competitive loans in Africa published in Oxford BES
Feb 7, 2017
Ethnic Fractionalization, Governance and Loan Defaults in Africa
Svetlana Andrianova, Badi H. Baltagi, Panicos Demetriades & David Fielding
Oxford Bulletin of Economics and Statistics, February 2017
Badi H. Baltagi
The authors 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. The authors' results have important implications for the conditions under which policy reform will enhance financial development.