Economic Information and Finance: More Information Means More Credit, Fewer Bad Loans, and Less Corruption

This paper examines the effect of greater economic transparency on the financial sector, specifically on the availability of credit, the share of non-performing loans in the portfolio, and corruption in bank lending. The paper argues that:

• Better information on overall economic conditions supports financial development;
• Economic transparency is positively related to higher levels of private credit and a lower share of non-performing loans;
• Timely access to economic data allows investors to make better decisions on investments and to better monitor banks financial health;
• Greater economic transparency raises accountability and lowers corruption in bank lending;
• Better information on economic variables lowers risk and helps lenders and borrowers make better judgements about borrowing and lending decisions.

The paper:

• Uses an indicator that reflects the timeliness of economic data reported by the government, called the “transparency indicator”;
• Links the timeliness of data measured by this indicator to financial sector development;
• Asks whether economic transparency affects corruption in bank lending after accounting for supervisory and regulatory practices in the financial sector.

The paper concludes that economic transparency has a significant positive and robust impact on private credit and a significant negative impact on non-performing loans and corruption in bank lending.