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Article Dans Une Revue Journal of Development Economics Année : 2007

Emerging Market Lending: Is Moral Hazard Endogenous?

Tobias Broer

Résumé

This paper shows how growth in financially open developing countries is affected when relations with international lenders suffer from the danger of moral hazard. We find that if entrepreneurs can gamble with foreign creditors¡¯ money, borrowing under standard debt contracts is constrained by a No-Gambling Condition similar to that in Hellmann, Murdock, and Stiglitz (2000). However, this incentive constraint is endogenous in the development process: growth increases entrepreneurs¡¯ own capital at risk and thus reduces incentives to gamble. But capital accumulation also decreases the profitability of investment, which has the opposite effect. General equilibrium under moral hazard shows a unique and stable steady state, but involves at least temporary rationing of profitable projects and possibly positive net investment by developing countries in international financial markets.
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Dates et versions

hal-04490082 , version 1 (05-03-2024)

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  • HAL Id : hal-04490082 , version 1

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Tobias Broer. Emerging Market Lending: Is Moral Hazard Endogenous?. Journal of Development Economics, 2007, 32 (2), pp.41-67. ⟨hal-04490082⟩
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