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Crises, Cronyism, and Credit
Author(s) -
Pagano Michael S.
Publication year - 2002
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/1540-6288.00013
Subject(s) - cronyism , transparency (behavior) , monetary economics , economics , language change , bond market , financial system , interest rate , credit crunch , art , literature , politics , political science , law
This paper examines the effects of several potential explanatory factors related to the 1997–1998 East Asian crisis. We find that a crisis can improve a poorly functioning credit system by making domestic lending rates more responsive to market‐based returns. We report that the responsiveness of short‐term lending rates is directly related to the level of transparency in the economy. Thus, countries with greater transparency (less corruption) are more likely to make credit decisions based on market‐wide forces rather than succumb to the influence of special interest groups. Nations with greater transparency also experience significantly shorter and less severe economic downturns.