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Credit, Labor Informality and Firm Performance in Colombia

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  • Lorena Caro
  • Arturo Galindo
  • Marcela Melendez

Abstract

This paper explores the links between labor formality, access to credit and firm performance in Colombia using Annual Manufacturing Survey data for the period 2000-2009. A significant though small relationship is found between access to credit and informality. The results suggest that a 10 percent increase in the ratio of credit to sectoral output increases labor formality between 0. 76 and 1. 14 percentage points. This effect vanishes as a firm’s financial constraint increases. The paper also reports a strong correlation between labor formality and firm performance measured as output and employment growth. A one percentage point increase in labor formality is associated with an 8. 5 percent increase in output and an 11 percent increase in employment growth.

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Bibliographic Info

Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4773.

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Date of creation: Jun 2012
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Handle: RePEc:idb:wpaper:4773

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  1. D'Erasmo, Pablo N. & Moscoso Boedo, Hernan J., 2012. "Financial structure, informality and development," Journal of Monetary Economics, Elsevier, vol. 59(3), pages 286-302.
  2. 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).
  3. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Legal Determinants of External Finance," Working Paper 19443, Harvard University OpenScholar.
  4. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
  5. Marcela Eslava & John Haltiwanger & Adriana Kugler & Maurice Kugler, 2006. "Plant Turnover and Structural Reforms in Colombia," IMF Staff Papers, Palgrave Macmillan, vol. 53(si), pages 3.
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Cited by:
  1. Ceyhun Elgin & Oguz Oztunali, 2013. "Institutions, Informal Economy and Economic Development," Working Papers 2013/03, Bogazici University, Department of Economics.

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