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Public institutions and private transactions : the legal and regulatory environment for business private transactions in Brazil and Chile

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Author Info

  • Stone, Andrew
  • Levy, Brian
  • Paredes, Ricardo

Abstract

Drawing on the new institutional economics, the authors examine the impact on businesses of Brazil's relatively complex, nontransparent legal and regulatory institutions and compare their costs with those of Chile's institutions, which are relatively simple. They examine four basic areas where legal and regulatory institutions could create critical obstacles to efficiency in the garment industries of Sao Paulo and Santiago: (a) the start-up of a new business (entry); (b) the regulation of business; (c) orders by customers of garment firms; and (d) sales with credit. They find that Chilean business transactions benefit from legal simplicity and more consistent enforcement than in Brazil, but that these perceived advantages are offset because of the differences between formal law and practice in Brazil. In two of these areas, Brazil has evolved some effective institutional substitutes to reduce the costs that would otherwise have been imposed by inefficient formal institutions. In the entry of new businesses, professions have evolved to transform the process of registering a new business from a potentially tortuous obstacle path into a fairly affordable one-stop process. In debt collection, information systems limit the need to resort to the formal legal system. Nevertheless, regulation raises the cost of transactions for Brazilian businesses. Costs are further raised by greater uncertainty and frequent renegotiation of orders.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 891.

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Date of creation: 30 Apr 1992
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Handle: RePEc:wbk:wbrwps:891

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Related research

Keywords: National Governance; Environmental Economics&Policies; Legal Products; Private Participation in Infrastructure; Small Scale Enterprise;

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Cited by:
  1. Sebastian Galiani & Federico Weinschelbaum, 2007. "Modeling Informality Formally: Households and Firms," CEDLAS, Working Papers, CEDLAS, Universidad Nacional de La Plata 0047, CEDLAS, Universidad Nacional de La Plata.
  2. Edgardo Campos, J. & Lien, Donald & Pradhan, Sanjay, 1999. "The Impact of Corruption on Investment: Predictability Matters," World Development, Elsevier, Elsevier, vol. 27(6), pages 1059-1067, June.
  3. Fafchamps, Marcel, 1997. "Trade credit in Zimbabwean manufacturing," World Development, Elsevier, Elsevier, vol. 25(5), pages 795-815, May.
  4. Meyer-Stamer, Jorg, 1998. "Path dependence in regional development: Persistence and change in three industrial clusters in Santa Catarina, Brazil," World Development, Elsevier, Elsevier, vol. 26(8), pages 1495-1511, August.
  5. Eggertsson, Thrainn, 1997. "The old theory of economic policy and the new institutionalism," World Development, Elsevier, Elsevier, vol. 25(8), pages 1187-1203, August.
  6. Chobanov, George & Egbert, Henrik & Gyuredzheklieva, Albena, 2006. "Предложения За Измерване На „Транзакционния Сектор“ От Официалната Статистика
    [Suggestions for Measuring the Transaction Secto
    ," MPRA Paper 56685, University Library of Munich, Germany.
  7. Araújo, E. & Gama, C. A. F., 2004. "Replicando características de ciclos econômicos: um estudo comparativo entre Redes Neurais Artificiais e modelos ARIMA," Insper Working Papers, Insper Working Paper, Insper Instituto de Ensino e Pesquisa wpe_45, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  8. Lazzarini, Sergio G. & Carvalho de Mello, Pedro, 2001. "Governmental versus self-regulation of derivative markets: examining the U.S. and Brazilian experience," Journal of Economics and Business, Elsevier, Elsevier, vol. 53(2-3), pages 185-207.
  9. Fafchamps, Marcel, 1996. "The enforcement of commercial contracts in Ghana," World Development, Elsevier, Elsevier, vol. 24(3), pages 427-448, March.
  10. Brunetti, Aymo, 1998. "Policy volatility and economic growth: A comparative, empirical analysis," European Journal of Political Economy, Elsevier, Elsevier, vol. 14(1), pages 35-52, February.
  11. Anders Fredriksson, 2013. "Bureaucracy Intermediaries, Corruption and Red Tape," Working Papers, University of Namur, Department of Economics 1202, University of Namur, Department of Economics.
  12. Woodruff, Christopher, 2002. "Non-contractible investments and vertical integration in the Mexican footwear industry," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 20(8), pages 1197-1224, October.
  13. Lazzarini, Sérgio G., 2012. "Strategizing by the Government: Industrial Policy and Sustainable Competitive Advantage," Insper Working Papers, Insper Working Paper, Insper Instituto de Ensino e Pesquisa wpe_289, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  14. Hallward-Driemeier, Mary & Pritchett, Lant, 2011. "How business is done and the'doing business'indicators : the investment climate when firms have climate control," Policy Research Working Paper Series 5563, The World Bank.

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