Has financial liberalization improved the efficiency with which investment funds are allocated to competing uses? In this paper, we address this question using firm-level panel data from 12 developing countries. We develop a summary index of the efficiency of investment allocation that measures...

This paper summarizes and discusses new evidence on the nature, extent, evolution and consequences of financing constraints in Latin America; this evidence is drawn from a recent series of papers. The countries covered are Argentina, Colombia, Costa Rica, Ecuador, Mexico, and Uruguay. All the new...

We suggest that foreign banks may represent a trade-off for their developing country hosts. A portfolio model is developed to show that a more diversified international bank may be one of lower, overall risk and less susceptible to funding shocks but may react more to shocks that affect expected...

Financial dollarization in Latin America has been growing over time in spite of a major reduction in inflation and a shift toward central bank independence. After discussing the key stylized facts of dollarization and dedollarization in the region, we discuss the risks this process poses to the...

A recent survey has shown that the major problem faced by firms in Latin American countries is difficulty in accessing financial markets. Figure 1 summarizes the findings of the Business Environment Survey on obstacles faced by firms.

This paper studies the relationship between creditor protection and credit volatility. During the negative phase of the business cycle, credit contracts more in countries with poor creditor protection. For similar shocks to business conditions, credit is more volatile in countries where...

An examination of several case studies in the region suggests that the ability to sustain a credible monetary policy depends on how vulnerable countries are to the impacts of sudden stops. In this respect, four aspects are of vital importance to ameliorate such impacts. Opening up the economy so...

Institutional and legal differences between countries increase entry costs and reduce the ability of banks to expand abroad. We use bilateral foreign banking data for 176 countries to estimate a gravity model in which bilateral cross-border banking activity is explained, in addition to standard...

We develop a model in which the elasticity of credit to exogenous shocks depends on creditor rights regulations. We show that an increase in creditor protection reduces the elasticity of credit supply to exogenous shocks, and hence the amplitude of the credit cycle. Using an extended set of a...

We explore the links between trust and a broad range of financial structure and development measures. Our base sample is a cross section of 48 countries and the analysis covers the period 1980-1994. We use a new World Bank data set that provides the most comprehensive coverage of financial...