Access to Formal Financial Markets and Microbusiness Formalization in Colombia

Manuela Acevedo (), Andrés Angel () and Camilo Acosta
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Manuela Acevedo: EAFIT University, Medellin, Colombia
Andrés Angel: EAFIT University, Medellin, Colombia

Coyuntura Económica, 2023, vol. 53, 51-79

Abstract: We study the relationship between microbusinesses’ access to formal credit and their transit toward formalization in Colombia. We use the country’s Microbusiness Survey—a database including both formal and informal microbusinesses—together with two definitions of formality: a binary and a multidimensional definition that exploits the array of rules faced by businesses. We document that those microbusiness es that request formal credit have a 12.5% higher probability of not being completely informal. Using the ownership of collateralizable assets as instruments, we confirm that the relationship between both variables is more than just a simple correlation: formal credit can help a microbusiness escape total informality. This positive effect of formal credit is larger for the first stages in the firms’ path toward formalization. On the contrary, informal credit can end up reinforcing firm informality.

Keywords: Informality; Gradual Formalization; Microbusinesses Savings; Credit (search for similar items in EconPapers)
JEL-codes: E26 G21 J46 O16 O17 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:col:000438:021120

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