Democracy favors access to credit of firms

Francis Osei-Tutu and Laurent Weill

European Journal of Political Economy, 2023, vol. 77, issue C

Abstract: Access to credit is one of the main obstacles for the growth of firms. We test the hypothesis that democracy exerts an impact on access to credit. We perform regressions at the firm-level on a large dataset of 46,000 firms in 108 countries. We find evidence of a negative relationship between democracy and credit constraints for firms. We further establish that democracy contributes to reduce borrower discouragement and leads to more bank loan approval decisions. Our key finding is therefore that democracy favors firms' access to credit. Our work contributes to the debate on the impact of democracy on economic development by considering one firm-level channel of transmission.

Keywords: Democracy; Access to credit; Financing constraints (search for similar items in EconPapers)
JEL-codes: G21 P16 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:77:y:2023:i:c:s017626802200115x

DOI: 10.1016/j.ejpoleco.2022.102312

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