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
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
New Economics Papers: this item is included in nep-dev, nep-dge and nep-eff
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Journal Article: Financial structure, informality and development (2012)
Working Paper: Financial Structure, Informality and Development (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:vir:virpap:374
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