Interest Rates, Credit Rationing, and Investment in Developing Countries

This paper examines the impact of interest rates and inflation on bank loans and investment within a framework that mimics the financial sectors prevailing in most low-income developing countries. The paper emphasizes the importance of treating the lending and deposit rates of interest as distinct p...

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Bibliographic Details
Main Author: Nkusu, Mwanza
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2003
Series:IMF Working Papers
Subjects:
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
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245 0 0 |a Interest Rates, Credit Rationing, and Investment in Developing Countries  |c Mwanza Nkusu 
260 |a Washington, D.C.  |b International Monetary Fund  |c 2003 
300 |a 31 pages 
651 4 |a United States 
653 |a Shadow Economy 
653 |a Depository Institutions 
653 |a Currencies 
653 |a Financial institutions 
653 |a Formal and Informal Sectors 
653 |a Interest Rates: Determination, Term Structure, and Effects 
653 |a Monetary Policy, Central Banking, and the Supply of Money and Credit: General 
653 |a Banks 
653 |a Credit 
653 |a Money and Monetary Policy 
653 |a Regimes 
653 |a Bank credit 
653 |a Standards 
653 |a Finance 
653 |a Interest rates 
653 |a Banks and Banking 
653 |a Mortgages 
653 |a Government and the Monetary System 
653 |a Monetary Policy 
653 |a Financial Markets and the Macroeconomy 
653 |a Institutional Arrangements 
653 |a Money 
653 |a Payment Systems 
653 |a Micro Finance Institutions 
653 |a Loans 
653 |a Industries: Financial Services 
653 |a Fiscal and Monetary Policy in Development 
653 |a Deposit rates 
653 |a Monetary economics 
653 |a Financial services 
653 |a Monetary Systems 
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520 |a This paper examines the impact of interest rates and inflation on bank loans and investment within a framework that mimics the financial sectors prevailing in most low-income developing countries. The paper emphasizes the importance of treating the lending and deposit rates of interest as distinct parameters in investment equations. The spread between the two rates is indicative of default risk and has a negative impact on incremental loan amounts associated with higher lending rates, in particular in economies with flawed institutions. The model presented in the paper highlights the importance of promoting macroeconomic stability and upgrading institutions and informational infrastructure