Informal Sector and Economic Growth: The Supply of Credit Channel
AbstractA standard view holds that removing barriers to entry and improving judicial enforcement would reduce informality and boost investment and growth. We show, however, that this conclusion may not hold in countries with a concentrated bank- ing sector or with low financial openness. When the formal sector becomes larger in those countries, more entrepreneurs become creditworthy and the higher pres- sure in the credit market increases the interest rate. This reduces future capital accumulation. We show some empirical evidence consistent with these predictions.
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Date of creation: Sep 2011
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Other versions of this item:
- Massenot, Baptiste & Straub, Stéphane, 2011. "Informal Sector and Economic Growth: The Supply of Credit Channel," TSE Working Papers 11-254, Toulouse School of Economics (TSE).
- Baptiste Massenot & Stéphane Straub, 2011. "Informal Sector and Economic Growth: The Supply of Credit Channel," Cahiers de Recherches Economiques du DÃ©partement d'EconomÃ©trie et d'Economie politique (DEEP) 12.03, Université de Lausanne, Faculté des HEC, DEEP.
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-10-01 (All new papers)
- NEP-BAN-2011-10-01 (Banking)
- NEP-ENT-2011-10-01 (Entrepreneurship)
- NEP-IUE-2011-10-01 (Informal & Underground Economics)
- NEP-MAC-2011-10-01 (Macroeconomics)
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