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The Decline of Latin American EconomiesGrowth, Institutions, and Crises$
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Sebastian Edwards, Gerardo Esquivel, and Graciela Marquez

Print publication date: 2007

Print ISBN-13: 9780226185002

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226185033.001.0001

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PRINTED FROM CHICAGO SCHOLARSHIP ONLINE (www.chicago.universitypressscholarship.com). (c) Copyright University of Chicago Press, 2020. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in CHSO for personal use.date: 05 April 2020

Related Lending: Manifest Looting or Good Governance?

Related Lending: Manifest Looting or Good Governance?

Lessons from the Economic History of Mexico

Chapter:
(p.213) 6 Related Lending: Manifest Looting or Good Governance?
Source:
The Decline of Latin American Economies
Author(s):

Noel Maurer

Stephen Haber

Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226185033.003.0007

This chapter presents two hypotheses on conditions under which related lending is pernicious and conditions under which it is not. The first is that the impact of related lending varies with the quality of property rights. According to this view, related lending was (and is) positive in the United States, continental Europe, and Japan because the rule of law and efficiently specified property rights make looting difficult. The second hypothesis is that the impact of related lending varies with the quality of corporate governance. The chapter argues that the weight of the evidence supports the second view: the outcome of related lending depends on the incentives and monitoring costs faced by bank directors, minority shareholders, and depositors. It is motivated by several curious features of what is perhaps the most intensively studied case of looting through related lending: Mexico from 1995 to 1998.

Keywords:   related lending, property rights, United States, Europe, Japan, rule of law, looting, incentives, monitoring costs, Mexico

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