Credit Constraints, Sector Informality and Firm Investments: Evidence from a Panel of Uruguayan Firms

31 Pages Posted: 6 Jun 2013

See all articles by Nestor Gandelman

Nestor Gandelman

Universidad ORT Uruguay

Alejandro Rasteletti

Inter-American Development Bank (IDB)

Date Written: March 2013

Abstract

This paper explores whether the extent of informality in a sector affects a firm's investment decision directly or indirectly through a credit availability channel. The dataset used in the estimation of the econometric models consists of an unbalanced panel of Uruguayan firms for the period 1997-2008. The results suggest that financial restrictions affect investment decisions in Uruguay, as an increase in credit to the private sector translates into higher investment rates. A one percentage point increase in overall credit growth translates into a one half percent increase in investment rates. It is also found that, although there is no direct effect of informality on the firm investment decision, there is an indirect effect through the borrowing channel. More specifically, financial restrictions reduce the amount of investment undertaken by Uruguayan firms, the effect being smaller if the firm operates in a sector with lower informality.

JEL Classification: E26, G21, O16, O4

Suggested Citation

Gandelman, Nestor and Rasteletti, Alejandro, Credit Constraints, Sector Informality and Firm Investments: Evidence from a Panel of Uruguayan Firms (March 2013). IDB Working Paper No. IDB-WP-392, Available at SSRN: https://ssrn.com/abstract=2275158 or http://dx.doi.org/10.2139/ssrn.2275158

Nestor Gandelman

Universidad ORT Uruguay ( email )

Bulevar España 2633
Montevideo, 11.300
Uruguay

Alejandro Rasteletti

Inter-American Development Bank (IDB)

1300 New York Avenue NW
Washington, DC 20577
United States

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