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Financial Dependence, Formal Credit and Firm Informality: Evidence from Peruvian Household Data

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  • Morón, Eduardo
  • Salgado, Edgar
  • Seminario, Cristhian

Abstract

This paper examines the link between financial deepening and formalization in Peru. Using data from the National Household Survey, Bloomberg and the Central Bank of Peru Central Bank, the CataÞo, Pagés, and Rosales (2009) model is implemented at activity level (2-digits ISIC), and the Rajan and Zingales (1998) approach of sectors' dependence on external funds is followed. The sample is divided into three firm size categories, and two formality measures are assessed. Using the accounting books specification, robust results are obtained, supporting a significant and positive effect of credit growth on formalization only for the self-employment firms category. Alternatively, using the pension enrollment specification, the channel is found positively significant only for firms with more than 10 workers; there is a smaller effect for firms with 2-10 workers. There is also a significant between effect, explaining the transition from small firms to larger firms due to greater credit availability.

Suggested Citation

  • Morón, Eduardo & Salgado, Edgar & Seminario, Cristhian, 2012. "Financial Dependence, Formal Credit and Firm Informality: Evidence from Peruvian Household Data," IDB Publications (Working Papers) 3969, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:3969
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    References listed on IDEAS

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    1. Loayza, Norman, 2008. "Causas y consecuencias de la informalidad en el Perú," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 15, pages 43-64.
    2. Daniel Paravisini & Veronica Rappoport & Philipp Schnabl & Daniel Wolfenzon, 2015. "Dissecting the Effect of Credit Supply on Trade: Evidence from Matched Credit-Export Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(1), pages 333-359.
    3. 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 of Labor Economics (IZA).
    4. Aghion, Philippe & Banerjee, Abhijit, 2005. "Volatility and Growth," OUP Catalogue, Oxford University Press, number 9780199248612.
    5. 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).
    6. Philippe Aghion & George-Marios Angeletos & Abhijit Banerjee & Kalina Manova, 2005. "Volatility and Growth: Credit Constraints and Productivity-Enhancing Investment," NBER Working Papers 11349, National Bureau of Economic Research, Inc.
    7. Guivanna Aguilar, 2011. "Microcrédito Y Crecimiento Regional En El Perú," Documentos de Trabajo / Working Papers 2011-317, Departamento de Economía - Pontificia Universidad Católica del Perú.
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    Cited by:

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    2. L. H. Gutiérrez & P. Rodr�guez- Lesmes, 2022. "Informal versus Formal: Microfirms' Productivity Gaps," Documentos de Trabajo 20226, Universidad del Rosario.
    3. Hernando Gutierrez, Luis & Rodriguez-Lesmes, Paul, 2023. "Productivity gaps at formal and informal microfirms," World Development, Elsevier, vol. 165(C).
    4. Salvatore Capasso & Franziska Ohnsorge & Shu Yu, 2025. "From financial development to informality: a causal link," Public Choice, Springer, vol. 203(3), pages 539-572, June.
    5. Miguel Lorca, 2021. "Effects of COVID‐19 early release of pension funds: The case of Chile," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 88(4), pages 903-936, December.
    6. Eduardo Moron & Edgar Salgado & Cristhian Seminario, 2013. "Regional Financial Development and Firm Growth in Peru," Research Department Publications IDB-WP-398, Inter-American Development Bank, Research Department.
    7. Mauricio Arango & Jaime Eduardo Fonseca & Carlos Andr�s Giraldo, 2014. "Trade Credit durante episodios de tensión financiera: ¿Fuente de volatilidad macroeconómica para la región?," Documentos de Discusión FLAR 11306, Fondo Latino Americano de Reservas - FLAR.
    8. Kerem Cantekin & Ceyhun Elgin, 2017. "Extent And Growth Effects Of Informality In Turkey: Evidence From A Firm-Level Survey," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 62(05), pages 1017-1037, December.

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    More about this item

    JEL classification:

    • 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
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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