Financial Dependence, Formal Credit and Informal Jobs - New Evidence from Brazilian Household Data
AbstractThis paper examines a much overlooked link between credit markets and formalization: since access to bank credit typically requires compliance with tax and employment legislation, firms are more likely to incur such formalization costs once bank credit is more widely available at lower cost. The relevance of this credit channel is gauged using the Rajan-Zingales measure of financial dependence and a difference-in-differences approach applied to household survey data from Brazil. It is found that formalization rates increase with financial deepening, especially in sectors where firms are typically more dependent on external finance. Also found is that, decomposing shifts in formalization rates into those within each firm size category and those between firm sizes, financial deepening significantly explains the former but not so much the latter. Some key policy implications are derived.
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Bibliographic InfoPaper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4642.
Date of creation: Dec 2009
Date of revision:
Credit Markets; Financial Dependence; Informality; Brazil;
Other versions of this item:
- Catão, Luis A. V. & Pagés, Carmen & Rosales, Maria Fernanda, 2009. "Financial Dependence, Formal Credit, and Informal Jobs: New Evidence from Brazilian Household Data," IZA Discussion Papers 4609, Institute for the Study of Labor (IZA).
- Luis Catão & Carmen Pagés-Serra & María Fernanda Rosales, 2009. "Financial Dependence, Formal Credit and Informal Jobs: New Evidence from Brazilian Household Data," IDB Publications 4123, Inter-American Development Bank.
- E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-12-11 (All new papers)
- NEP-LAM-2009-12-11 (Central & South America)
- NEP-MAC-2009-12-11 (Macroeconomics)
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- Néstor Gandelman & Alejandro Rasteletti, 2012.
"The Impact of Bank Credit on Employment Formality in Uruguay,"
68458, Inter-American Development Bank.
- Nestor Gandelman & Alejandro Rasteletti, 2012. "The Impact of Bank Credit on Employment Formality in Uruguay," Research Department Publications 4778, Inter-American Development Bank, Research Department.
- Lorena Caro & Arturo Galindo & Marcela Melendez, 2012.
"Credit, Labor Informality and Firm Performance in Colombia,"
Research Department Publications
4773, Inter-American Development Bank, Research Department.
- Lorena Caro & Arturo Galindo & Marcela Meléndez Arjona, 2012. "Credit, Labor Informality and Firm Performance in Colombia," IDB Publications 71978, Inter-American Development Bank.
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