Access to Credit and the Size of the Formal Sector in Brazil
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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| Format: | Working Papers biblioteca |
| Language: | English |
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Inter-American Development Bank
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| Subjects: | Financial Service, D24 - Production • Cost • Capital • Capital Total Factor and Multifactor Productivity • Capacity, E26 - Informal Economy • Underground Economy, L11 - Production Pricing and Market Structure • Size Distribution of Firms, O16 - Financial Markets • Saving and Capital Investment • Corporate Finance and Governance, O17 - Formal and Informal Sectors • Shadow Economy • Institutional Arrangements, IDB-WP-404, Financial Structure, Informal Sector, Productivity, |
| Online Access: | http://dx.doi.org/10.18235/0011472 https://publications.iadb.org/en/access-credit-and-size-formal-sector-brazil |
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