Informal Sector and Economic Development: The Credit Supply Channel

Massenot, Baptiste and Straub, Stéphane (2016) Informal Sector and Economic Development: The Credit Supply Channel. Economic Inquiry, 54 (2). pp. 1046-1067.

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Official URL: http://tse-fr.eu/pub/29846

Abstract

A standard view holds that removing barriers to entry and improving judicial
enforcement would reduce informality and boost investment and growth. We show,
however, that this conclusion may not hold in countries with a concentrated bank-
ing sector or with low financial openness. When the formal sector becomes larger
in those countries, more entrepreneurs become creditworthy and the higher pres-
sure in the credit market increases the interest rate. This reduces future capital
accumulation. We show some empirical evidence consistent with these predictions.

Item Type: Article
Language: English
Date: April 2016
Refereed: Yes
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 05 Nov 2015 15:11
Last Modified: 07 Mar 2018 13:23
OAI ID: oai:tse-fr.eu:29846
URI: http://publications.ut-capitole.fr/id/eprint/18608

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