International Bank Lending to LDCs: An Information Based Approach

✍ Scribed by Prasanna. S. Gai

• Publisher: John Wiley and Sons
• Year: 1997
• Tongue: English
• Weight: 169 KB
• Volume: 2
• Category: Article
• ISSN: 1076-9307
• DOI: 10.1002/(sici)1099-1158(199701)2:1<59::aid-ijfe17>3.0.co;2-h

✦ Synopsis

The model demonstrates that the total lending that takes place in such an environment is higher than optimal, i.e. higher than the level of lending that would have occurred if both banks had full information about the debtor. The debtor, for its part, realises that lending will be higher and related largely to the strategic interaction between the two types of bank and, as a consequence, undertakes less adjustment than under a situation of perfect information. Over-lending by banks and lower adjustment effort by LDCs are, therefore, shown to arise simultaneously.

The paper presents some informal evidence in support of the theoretical results.