Economics at your fingertips  

Access to Credit Markets and Decisions of an Entrepreneur

Kaushal Basnet
Additional contact information
Kaushal Basnet: Ryerson University, Canada

Journal of Development Innovations, 2018, vol. 2, issue 1, 39-56

Abstract: One of the biggest characteristics in the developing world is the existence of large informal sectors. In this paper, we develop a model of an individual’s choice between the formal sector and informal sector. Using the occupational choice model developed by Lucas (1978) and Haniff (2015), we map the choices of an individual based on skills and assets and access to credit markets. This paper examines how access to credit markets affect the decisions made by entrepreneurs. We find that entrepreneurs with high ability but lack assets for collateral will not be able to get loans to pay for the costs associated with formalization. Lack of access to credit markets further increases the cost of formalization due to increase in financial costs. The entrepreneur will then choose to be operated in the informal sector. An individual who lacks both assets and skill will choose to be worker in the formal sector.

Keywords: Access to Credit Markets; Informality; Cost of Formalization (search for similar items in EconPapers)
JEL-codes: E5 J4 L26 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Journal of Development Innovations is currently edited by Bamadev Paudel

More articles in Journal of Development Innovations from KarmaQuest Internatioinal KarmaQuest International 5640 Rosaline Rd Burlington, ON L7L6T4.
Bibliographic data for series maintained by Bamadev Paudel ().

Page updated 2020-01-18
Handle: RePEc:kqi:journl:2019-2-1-3