TY - JOUR
T1 - Competition under credit rationing
T2 - Theory and evidence from rural China
AU - Park, Albert
AU - Brandt, Loren
AU - Giles, John
PY - 2003/8
Y1 - 2003/8
N2 - We present a duopoly model of financial competition to describe the conditions under which competition leads to greater bank effort when repressed financial systems ration credit. The model features an entrant that freely sets its interest rate, and an incumbent that must charge a rate below that which is market clearing. Both players may exert costly effort to inform themselves about borrower types. Using data on rural financial institutions in China, we test empirically the effects of competition on deposit growth, loan portfolio composition, repayment rates, and other effort measures, finding positive effects of competition on effort and financial performance.
AB - We present a duopoly model of financial competition to describe the conditions under which competition leads to greater bank effort when repressed financial systems ration credit. The model features an entrant that freely sets its interest rate, and an incumbent that must charge a rate below that which is market clearing. Both players may exert costly effort to inform themselves about borrower types. Using data on rural financial institutions in China, we test empirically the effects of competition on deposit growth, loan portfolio composition, repayment rates, and other effort measures, finding positive effects of competition on effort and financial performance.
KW - Banking
KW - China
KW - Competition
KW - Credit
KW - Rationing
UR - https://www.webofscience.com/wos/woscc/full-record/WOS:000184013000010
UR - https://openalex.org/W1977370161
UR - https://www.scopus.com/pages/publications/0038270090
U2 - 10.1016/S0304-3878(03)00037-3
DO - 10.1016/S0304-3878(03)00037-3
M3 - Journal Article
SN - 0304-3878
VL - 71
SP - 463
EP - 495
JO - Journal of Development Economics
JF - Journal of Development Economics
IS - 2
ER -
