Insolvency and Economic Development: Regional Variation and Adjustment

Published: 2005

Authors: Arthur Grimes, Richard Fabling

We examine the determinants of forced insolvency in New Zealand. The study incorporates three key features. First, we use regional as well as national data. Second, we analyse the role of property prices, which influence collateral values. Third, we explain the rate of total forced insolvency including personal bankruptcies and involuntary company liquidations.

Insolvencies are explained by economic activity, financial variables and collateral values. The interactions between economic activity, leverage and property price (collateral) shocks indicate that region-specific shocks can compound into significant localised economic cycles.

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Citation

Grimes, Arthur and Richard Fabling. 2005. "Insolvency and Economic Development: Regional Variation and Adjustment," Journal of Economics and Business, 57:4, pp. 339-359.