The Economic Effects of a Borrower Bailout: Evidence from an Emerging Market

56 Pages Posted: 20 Apr 2016

See all articles by Xavier Giné

Xavier Giné

World Bank - Development Research Group (DECRG)

Martin Kanz

World Bank; World Bank - Development Research Group (DECRG)

Date Written: November 1, 2014

Abstract

This paper studies the credit market implications and real effects of one the largest borrower bailout programs in history, enacted by the government of India against the backdrop of the 2008-2009 financial crisis. The study finds that the stimulus program had no effect on productivity, wages, or consumption, but led to significant changes in credit allocation and an increase in defaults. Post-program loan performance declines faster in districts with greater exposure to the program, an effect that is not driven by greater risk-taking of banks. Loan defaults become significantly more sensitive to the electoral cycle after the program, suggesting the anticipation of future credit market interventions as an important channel through which moral hazard in loan repayment is intensified.

Keywords: Agricultural Economics, Economic Insecurity

Suggested Citation

Gine, Xavier and Kanz, Martin, The Economic Effects of a Borrower Bailout: Evidence from an Emerging Market (November 1, 2014). World Bank Policy Research Working Paper No. 7109. Available at SSRN: https://ssrn.com/abstract=2524163

Xavier Gine (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

HOME PAGE: https://sites.google.com/site/decrgxaviergine/

Martin Kanz

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

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