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Financial Fragmentation despite Arbitrage

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  • Klonner, Stefan
  • Rai, Ashok S.

Abstract

If there were no impediments to the flow of capital across space, then interest rates would equalized. We provide evidence to the contrary. We find significant differences in interest rates across the South Indian state of Tamil Nadu, i.e. evidence that financial markets are fragmented. We also find evidence of limited arbitrage across financial markets.

Suggested Citation

  • Klonner, Stefan & Rai, Ashok S., 2009. "Financial Fragmentation despite Arbitrage," Proceedings of the German Development Economics Conference, Frankfurt a.M. 2009 19, Verein für Socialpolitik, Research Committee Development Economics.
    • Handle: RePEc:zbw:gdec09:19
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    References listed on IDEAS

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    1. Anna L. Paulson & Robert M. Townsend & Alexander Karaivanov, 2006. "Distinguishing Limited Liability from Moral Hazard in a Model of Entrepreneurship," Journal of Political Economy, University of Chicago Press, vol. 114(1), pages 100-144, February.
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    More about this item

    Keywords

    credit constraints; informal finance;

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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