Abstract:The rising incidence of credit defaults may cause credit crunch. This affects the ability of firms to finance working capital and also fixed capital formation. Naturally, this is a major macroeconomic shock. This paper is an attempt to address the microeconomic foundation of such macroeconomic shock. We provide a theoretical framework to explain the economic rationale behind ‘wilful corporate defaults’ and ‘financial corruption’ in the specific context of trade liberalization. First, we model the behavioural a… Show more
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