Credit Constraints, Political Instability, and Capital Accumulation

Author/Editor:

Risto Herrala ; Rima A Turk

Publication Date:

December 16, 2013

Electronic Access:

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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:

We investigate the complex interactions between credit constraints, political instability, and capital accumulation using a novel approach based on Kiyotaki and Moore’s (1997) theoretical framework. Drawing on a unique firm-level data set from Middle-East and North Africa (MENA), empirical findings point to a large and significant effect of credit conditions on capital accumulation and suggest that continued political unrest worsens credit constraints. The results support the view that financial development measured by a relaxing of financial constraints is key to macroeconomic development.

Series:

Working Paper No. 2013/246

Subject:

Capital accumulation Credit Credit ceilings Financial institutions Financial services Money National accounts Real interest rates Stocks

English

Publication Date:

December 16, 2013

ISBN/ISSN:

9781484303085/1018-5941

Stock No:

WPIEA2013246

Pages:

26

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