Paper

What Drives Household Borrowing and Credit Constraints? Evidence from Bosnia & Herzegovina

Examines the determinants of households’ participation in the credit market.'

This paper analyzes the determinants of household credit demand and credit constraints in Bosnia and Herzegovina (BiH), comparing results with trends in developed countries. The study employs household survey data from 2001 to 2004. Study results highlight the impact of the country's post-conflict and transitional nature on borrowers' and lenders' behavior. Findings include:

  • Age, income, wealth and education qualifications are the main factors driving credit market participation;
  • High income and high wealth lower credit constraints;
  • Probability of credit market participation peaks at 45 years of age, considerably higher than that in advanced countries;
  • Older individuals are significantly more credit constrained than their peers in advanced countries.

Understanding credit constraints and their determinants has important policy implications at the micro and macro levels. The following conclusions emerge from the study:

  • Credit boom largely reflects the overall post-war demand, and indicates the worse-off position of the older generation in transition economies;
  • Mismatch exists between education qualifications and earning prospects in BiH. Education variables have no significant effect on credit constraints, but, being unemployed significantly increases the likelihood.

About this Publication

By Chen, K. & Chivakul, M.
Published