Abstract

http://ssrn.com/abstract=2448091
 


 



Credit Markets and Economic Activity: Evidence from Exogenous Variation in Legal Institutions


James R. Brown


Iowa State University - Department of Finance

J. Anthony Cookson


University of Colorado at Boulder - Leeds School of Business

Rawley Heimer


Brandeis University - International Business School

July 18, 2014


Abstract:     
This paper provides novel evidence on the causal link between credit markets and real economic activity. Our analysis exploits quasi-experimental variation in legal contract enforcement across Native American reservations arising from Public Law 280, wherein the US Congress externally assigned state courts to adjudicate contracts on a subset of reservations. According to area-specific micro-level data on household and small business credit, reservations assigned to state courts, which tend to enforce contracts more predictably than tribal courts, have stronger credit markets. Moreover, the law-driven component of credit market development is associated with significantly higher levels of per capita income, with stronger effects in sectors that depend more on external financing. By using exogenous variation in legal institutions across relatively-similar sovereign entities, our study offers compelling evidence that better-developed credit markets lead to economically significant improvements to real activity.

Number of Pages in PDF File: 42

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Date posted: June 10, 2014 ; Last revised: July 20, 2014

Suggested Citation

Brown, James R. and Cookson, J. Anthony and Heimer, Rawley, Credit Markets and Economic Activity: Evidence from Exogenous Variation in Legal Institutions (July 18, 2014). Available at SSRN: http://ssrn.com/abstract=2448091 or http://dx.doi.org/10.2139/ssrn.2448091

Contact Information

James R. Brown
Iowa State University - Department of Finance ( email )
College of Business
Ames, IA 50011-2063
United States
J. Anthony Cookson (Contact Author)
University of Colorado at Boulder - Leeds School of Business ( email )
Boulder, CO 80309-0419
United States
Rawley Heimer
Brandeis University - International Business School ( email )
Mailstop 32
Waltham, MA 02454-9110
United States
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