Financial Liberalization in Emerging Markets: How Does Bank Lending Change?

23 Pages Posted: 26 Feb 2008

See all articles by Olaf Hübler

Olaf Hübler

University of Hannover; IZA Institute of Labor Economics

Lukas Menkhoff

German Institute for Economic Research (DIW Berlin); Humboldt University of Berlin - Faculty of Economics

Chodechai Suwanaporn

Chulalongkorn University

Abstract

Financial liberalization has often failed in the past due to underestimated problems of structural change. We analyze such changes in lending behavior of Thai commercial banks during a liberalization phase by way of unique micro data. Liberalization has expected positive effects, such as lowering the interest rate spread and collateral requirements. Liberalization causes structural change, such as a decline in collateral-based and relationship banking. However, the liberalization evidence is consistent with more risk taking, such as lending to more risky projects and less protection against default. The Thai experience suggests obvious policy lessons.

Suggested Citation

Hübler, Olaf and Menkhoff, Lukas and Suwanaporn, Chodechai, Financial Liberalization in Emerging Markets: How Does Bank Lending Change?. World Economy, Vol. 31, Issue 3, pp. 393-415, March 2008. Available at SSRN: https://ssrn.com/abstract=1096757 or http://dx.doi.org/10.1111/j.1467-9701.2007.01067.x

Olaf Hübler (Contact Author)

University of Hannover ( email )

Institute of Quantitative Economic Research
D-30167 Hannover
Germany
+49 511 762 4794 (Phone)
+49 511 762 3923 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Lukas Menkhoff

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Humboldt University of Berlin - Faculty of Economics ( email )

Spandauer Strasse 1
Berlin
Germany

Chodechai Suwanaporn

Chulalongkorn University ( email )

Bangkok 10330
Thailand

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