Abstract

http://ssrn.com/abstract=310241
 
 

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Endogenous Financial Intermediation and Real Effects of Capital Account Liberalization


George Alessandria


Federal Reserve Bank of Philadelphia

Jun Qian


Shanghai Advanced Institute of Finance(SAIF), Shanghai Jiao Tong University; University of Pennsylvania - Wharton Financial Institutions Center; China Academy of Financial Research (CAFR)

June 2004


Abstract:     
We consider lending and investment under asymmetric information in a small, developing economy. We allow different forms of financing contracts to arise endogenously in the credit market. Financial intermediaries mitigate a moral hazard problem in investment choice through costly monitoring and liquidation. We then examine the impact of opening the capital account on both welfare and the structure of lending contracts. Depending on the quality and cost of the monitoring technology, liberalizing the capital account may improve or worsen the efficiency of financial intermediaries, leading to an improvement or worsening of the aggregate composition of investment projects. Efficient financial intermediaries are neither necessary nor sufficient for a capital account liberalization to improve welfare.

Number of Pages in PDF File: 41

Keywords: Financial intermediation, capital account, moral hazard, lending contracts

JEL Classification: G2, F3, O1

working papers series





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Date posted: May 25, 2002  

Suggested Citation

Alessandria, George and Qian, Jun, Endogenous Financial Intermediation and Real Effects of Capital Account Liberalization (June 2004). Available at SSRN: http://ssrn.com/abstract=310241 or http://dx.doi.org/10.2139/ssrn.310241

Contact Information

George A. Alessandria
Federal Reserve Bank of Philadelphia ( email )
Ten Independence Mall
Philadelphia, PA 19106-1574
United States
(215) 574-6402 (Phone)
(215) 574-4364 (Fax)
Jun Qian (Contact Author)
Shanghai Advanced Institute of Finance(SAIF), Shanghai Jiao Tong University ( email )
211 West Huaihai Road
Shanghai, 200030
China
86-21-62934520 (Phone)
86-21-62934572 (Fax)
HOME PAGE: http://www.saif.sjtu.edu.cn/en/professors/2101
University of Pennsylvania - Wharton Financial Institutions Center
2306 Steinberg Hall-Dietrich Hall
Philadelphia, PA 19104
United States
HOME PAGE: http://fic.wharton.upenn.edu/fic/
China Academy of Financial Research (CAFR)
1954 Huashan Road
Shanghai P.R.China, 200030
China

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