The Transmission of a Global Financial Crisis Shock to an Emerging Economy

Using a unique dataset consisting of all corporate loans in Pakistan, we study the impact of the global financial crisis (GFC) on the lending ability of its banking sector. Contrary to the popular belief, our findings show that Pakistani banking sector was indeed affected by the GFC as lending ability of various bank types and loans was negatively affected. By using direct information asymmetry measure, we also find that banks reduce lending after the financial shock. These findings are very relevant in the context of spillover effects of the GFC and have important policy implications for emerging markets.