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Financial Structure, Informality and Development

Hernan Moscoso Boedo and Pablo N D’Erasmo ()
Authors registered in the RePEc Author Service: Pablo N. D'Erasmo ()

Virginia Economics Online Papers from University of Virginia, Department of Economics

Abstract: This is a theory of total factor productivity based on measured capital market im- perfections and costs of creating and operating formal sector firms. We develop a firm dynamics model with endogenous formal and informal sectors where firms face a technol- ogy adoption opportunity. The model predicts that countries with a low degree of debt enforcement and high costs of formality are characterized by low allocative efficiency and a large share output produced by low productivity firms in the informal sector. We find that this mechanism is quantitatively important. When frictions are parameterized using the World Bank Doing Business database, the model explains up to 60% of total factor productivity differences between the US and developing economies.

Keywords: Financial Structure; Informal Sector; Productivity; Policy Distortions (search for similar items in EconPapers)
JEL-codes: D24 E26 L11 O16 O17 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2009-11
New Economics Papers: this item is included in nep-dev, nep-dge and nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (50) Track citations by RSS feed

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Related works:
Journal Article: Financial structure, informality and development (2012) Downloads
Working Paper: Financial Structure, Informality and Development (2010) Downloads
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