Asset Inequality, Relative Efficieny of Formal Credit Markets and Choice of Organizational Form
AbstractWe model the organizational choice of a small firm given formal and informal credit market parameters. We observe a positive relationship between the size of the informal sector and the spread across countries. We take spread as relative inefficiency of the formal credit markets. Furthermore we also witness a convex positive relationship between the start-up costs and the size of the informal sector. The start-up costs are extremely important sunk costs for the micro and/or small enterprises. We argue that both the spread and the start-up costs are important parameters for the small enterprises in terms of the organizational choice. We provide a simple model to account for these main empirical regularities.
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Bibliographic InfoPaper provided by Izmir University of Economics in its series Working Papers with number 0908.
Length: 18 pages
Date of creation: Dec 2009
Date of revision:
Organizational forms; Formal and Informal Credit Markets;
Find related papers by JEL classification:
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
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