What Drives Household Borrowing and Credit Constraints? Evidence from Bosnia & Herzegovina

 
Author/Editor: Chen , Ke Chen ; Chivakul, Mali
 
Publication Date: August 01, 2008
 
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: Although Bosnia and Herzegovina (BiH) has experienced rapid growth in credit to households in recent years, most individuals are still credit constrained. This paper analyzes the determinants of household credit demand and credit constraints in BiH. To our knowledge, it is the first study on this topic employing household survey data (2001 and 2004) from Emerging Europe. Our results highlight the impact of the post-conflict and transitional nature of the country on the behavior of borrowers and lenders. As expected, age, income, wealth and education qualifications are the main factors driving credit market participation, while high income and high wealth lower credit constraints. In BiH, the probability of credit market participation peaks at 45 years old, considerably higher than in the advanced countries. At the same time, older individuals are significantly more constrained than their peers in the advanced countries. The results imply that the current credit boom may largely reflect the overall post-war demand, and indicate the worse-off position of the older generation in transition economy. Moreover, the results underscore the structural nature of unemployment as well as the mismatch between education qualifications and earning prospects in BiH. Education variables have no significant effect on the likelihood of being constrained, while, unlike in the advanced countries, being unemployed significantly increases the likelihood.
 
Series: Working Paper No. 08/202
Subject(s): Bosnia and Herzegovina | Credit expansion | Credit restraint | Public debt | Education | Unemployment | Economic conditions | Interest rates | Inflation | Credit policy | Economic models

Author's Keyword(s): household debt | credit constraints | Bosnia & Herzegovina
 
English
Publication Date: August 01, 2008
Format: Paper
Stock No: WPIEA2008202 Pages: 34
Price:
US$18.00 (Academic Rate:
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