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Borrowing Constraints and Credit Demand in a Developing Economy
Author(s) -
RuizTagle Jaime,
Vella Francis
Publication year - 2016
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.2465
Subject(s) - household debt , economics , endogeneity , debt , monetary economics , developing country , income elasticity of demand , population , macroeconomics , econometrics , economic growth , demography , sociology
Summary This paper investigates the determinants of credit demand in the presence of borrowing constraints in a developing economy. We model the determinants of observed debt for Chilean households while accounting for selection bias and the endogeneity of their income and specific household assets. Using a novel Chilean dataset, we estimate the relationship between household characteristics and consumer and mortgage debt. We find substantial differences in the nature of these relationships across the types of debt. For example, we find that the income elasticity for consumer debt is greater than 1 whereas for mortgage debt it is not. The results suggest the increased availability of credit, combined with the aging of the Chilean population, is likely to drastically change the distribution and level of Chilean debt. These findings are particularly relevant for other developing economies currently experiencing rapid income and debt growth. Copyright © 2015 John Wiley & Sons, Ltd.