Interbank market frictions, international banks and growth

Abstract

In developing countries and countries in transition, a lack of finance is regarded as a major reason for the underperformance of the SME sector. The financial sector does not channel funds efficiently from savers to the most efficient investment. In a general equilibrium endogenous growth model, we explain the underperformance of the SME sector by interbank market frictions. High information costs in the interbank market lead to a high loan/deposit spread and hence to a low growth equilibrium. The solution to this problem is twofold. First, central bank policy could reduce interbank information problems by providing effective bank supervision. Second, if the central bank is expected not to have sufficient monitoring capabilities, reputation and reserves, opening up the interbank market to international banks can substitute for insufficient central bank activities. Copyright Springer-Verlag Berlin Heidelberg 2004Endogenous growth, transition, financial intermediation, interbank market, asymmetric information, P20, O16, G21,

Financing the Alternative: Renewable Energy in Developing and Transition Countries

“…We exclude the possibility of Ponzi schemes by assuming that firms revolve loans infinitely and service no more than the interest payments (Gries et al, 2004). With r d denoting the bank deposit rate, the present discounted value of the entrepreneur's setup costs is…”

“…hydropower, wind, geothermal, photovoltaic and solar thermal, biomass, etc., to the final energy producer. Final energy is produced by means of labour and primary RE resources R i according to the following extended Cobb-Douglas production function (Romer, 1990;Gries et al, 2004):…”

“…This is consistent with the view that the development of the domestic financial sectors is the crucial factor in meeting the booming energy demand in less developed economies (Ishiguro and Akiyama, 1995;World Bank, 2003). 4 Following this line of reasoning, the paper presents a multi-sector endogenous growth model of the expanding-varieties type (following Gries et al, 2004;and Romer, 1990), which explains the influence of financial intermediaries on the development of RETs in developing and transition countries. The focus is on the development of financial intermediaries-and especially the banking sector and banks' role as evaluators of potential debtors-as a driving force in the introduction of RETs in these countries.…”