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Access to Credit and the Size of the Formal Sector in Brazil

Listed author(s):
  • Pablo N. D'Erasmo
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    This paper studies the link between credit conditions and formalization in Brazil, as both credit and the rate of formalization have notably increased in the last decade. A firm dynamics model with endogenous formal and informal sectors is developed to quanti- tatively evaluate how much of the change in corporate credit and the size of the formal sector can be attributed to a reduction in the cost of financial intermediation. The model predicts that the observed reduction in intermediation costs generates an increase in the credit-to-output ratio and in the share of formal workers, in line with the data. It is found that-by affecting the corporate interest rate, the allocation of capital and the entry and exit rates-the change in credit conditions has important effects on firm size distribution and aggregate productivity.

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    File URL: http://publications.iadb.org/bitstream/handle/11319/4545/Access%20to%20Credit%20and%20the%20Size%20of%20the%20Formal%20Sector%20in%20Brazil.pdf?sequence=1
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    Paper provided by Inter-American Development Bank in its series IDB Publications (Working Papers) with number 4545.

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    Date of creation: Apr 2013
    Handle: RePEc:idb:brikps:4545
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