PRIVATE SECTOR RISK AND FINANCIAL CRISES IN EMERGING MARKETS

摘要

Investment necessary for growth is risky and often requires external financing. We present a model in which capital market imperfections separate countries into a safe credit club of industrial countries, with low interest rates and steady credit access and a risky club of emerging markets, with high interest rates and volatile access. In an emerging market, a large negative productivity shock interacts with credit-market imperfections to trigger a severe contraction in external lending. Domestic agents react with widespread default. We calibrate to South Korean parameters and argue that the 1998 financial crisis could have been the downside of risky investment financed in imperfect capital markets. Countries at different stages of development experience substantial differences in credit-market characteristics. Underdeveloped countries have no access to credit; emerging markets have access but loans are relatively risky, with interest rates reflecting that risk, and access is volatile; developed countries have reliable access with low interest rates. The Asian financial crises, characterised by high levels of non-performing loans and bankruptcies (Corsetti et al., 1999) and high costs of recapitalising the financial sector (Burnside et al., 2001), drew attention to the volatile nature of emerging-market credit and the financial crises which can occur in these economies. A large quantity of literature has been devoted to understanding the cause of these crises with the objective of developing policy to prevent future crises.