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The Importance of an Effective Legal System for Credit Markets: The Case of Argentina

Author

Listed:
  • Andrew Powell
  • Marcela Cristini
  • Ramiro Moya

Abstract

Argentina is a federal country and hence, although laws are national and the central bank has national jurisdiction as a regulator of the financial system, the 24 Argentine provinces have independent judicial authority. In this paper we analyze how variations in the effectiveness of the legal system across the different provinces have affected the development of credit markets. We find strong results. Provinces with poor legal enforcement have less credit available to borrowers and banks’ non-performing loans are higher. We conclude that the effectiveness of the legal system remains a highly significant variable in determining the development of the Argentine credit market and that improvements in the legal system would result in a significant increase in the availability of credit.

Suggested Citation

  • Andrew Powell & Marcela Cristini & Ramiro Moya, 2001. "The Importance of an Effective Legal System for Credit Markets: The Case of Argentina," Research Department Publications 3125, Inter-American Development Bank, Research Department.
    • Handle: RePEc:idb:wpaper:3125
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    References listed on IDEAS

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    1. Michael Gavin & Ricardo Hausmann, 1997. "Make or Buy? Approaches to Financial Market Integration," Research Department Publications 4052, Inter-American Development Bank, Research Department.
    2. Sherwood, Robert M. & Shepherd, Geoffrey & De Souza, Celso Marcos, 1994. "Judicial systems and economic performance," The Quarterly Review of Economics and Finance, Elsevier, vol. 34(Supplemen), pages 101-116.
    3. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    4. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
    5. Gustavo Enrique Cañonero, 1997. "Bank Concentration and the Supply of Credit in Argentina," IMF Working Papers 1997/040, International Monetary Fund.
    6. Mr. Luis Catão, 1997. "Bank Credit in Argentina in the Aftermath of the Mexican Crisis: Supply or Demand Constrained?," IMF Working Papers 1997/032, International Monetary Fund.
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    Citations

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    Cited by:

    1. Hainz, Christa, 2009. "Creditor passivity: The effects of bank competition and institutions on the strategic use of bankruptcy filings," Journal of Comparative Economics, Elsevier, vol. 37(4), pages 582-596, December.
    2. Straub, Stéphane, 2005. "Informal sector: The credit market channel," Journal of Development Economics, Elsevier, vol. 78(2), pages 299-321, December.
    3. Kalyvas, Antonios Nikolaos & Mamatzakis, Emmanuel, 2014. "Does business regulation matter for banks in the European Union?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 278-324.
    4. Mathur, Ike & Marcelin, Isaac, 2015. "Institutional failure or market failure?," Journal of Banking & Finance, Elsevier, vol. 52(C), pages 266-280.
    5. Laeven, Luc & Majnoni, Giovanni, 2005. "Does judicial efficiency lower the cost of credit?," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1791-1812, July.
    6. Matthieu Chemin, 2007. "Decoding the Code of Civil Procedure: Do Judiciaries Matter for Growth?," Cahiers de recherche 0726, CIRPEE.
    7. Jappelli, Tullio & Pagano, Marco & Bianco, Magda, 2005. "Courts and Banks: Effects of Judicial Enforcement on Credit Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 223-244, April.
    8. Safavian, Mehnaz & Sharma, Siddharth, 2007. "When do creditor rights work?," Journal of Comparative Economics, Elsevier, vol. 35(3), pages 484-508, September.
    9. Galarza, Francisco, 2003. "El crédito solidario, el colateral social, y la colusión. Algunos apuntes [Group Lending, Social Collateral and Collusion. Some Notes]," MPRA Paper 30442, University Library of Munich, Germany.
    10. Chemin, Matthieu, 2009. "Do judiciaries matter for development? Evidence from India," Journal of Comparative Economics, Elsevier, vol. 37(2), pages 230-250, June.
    11. Daniela Fabbri, 2001. "The Legal Enforcement of Credit Contracts and the Level of Investment," CSEF Working Papers 57, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    12. Matthieu Chemin, 2007. "Does Judicial Quality Shape Economic Activity? Evidence from a Judicial Reform in India," Cahiers de recherche 0725, CIRPEE.
    13. Fabbri, Daniela & Padula, Mario, 2004. "Does poor legal enforcement make households credit-constrained?," Journal of Banking & Finance, Elsevier, vol. 28(10), pages 2369-2397, October.
    14. Agarwal, Sumit & Chomsisengphet, Souphala & Hassler, Olivier, 2005. "The impact of the 2001 financial crisis and the economic policy responses on the Argentine mortgage market," Journal of Housing Economics, Elsevier, vol. 14(3), pages 242-270, September.
    15. Liu, Yurou, 2023. "Judicial independence and crash risk: Evidence from a natural experiment in China," Journal of Corporate Finance, Elsevier, vol. 83(C).
    16. Greta Falavigna & Roberto Ippoliti, 2018. "Industrial spatial dynamics, financial health and bankruptcy: evidence from Italian manufacturing industry," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 45(4), pages 533-554, December.

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