Capital Flows and Fragmented Credit Markets in Latin America
38 Pages Posted: 13 Aug 2016
Date Written: August 11, 2016
Latin America experiences since 2008 a "capital bonanza" related to the expansive monetary policy of central banks in big industrialized countries. Using data from the Enterprise Surveys (The World Bank) of over 8,000 officially registered firms in 18 Latin American countries I examine to which extent buoyant capital inflows into the region between 2008 and 2009 are related to the firms' relative use of informal vs formal financing sources given specific legal-institutional barriers for credit. I find that capital inflows are related to a lower use of informal relative to formal financing. The negative effect is larger with higher levels of banking concentration. The effect of capital inflows on the use of informal financing sources is positive with high start-up costs and low property rights index values.
Keywords: informal financing sources, banking concentration, capital flows, Lerner index, start-up costs, property rights, credit supply barriers, credit demand barriers.
JEL Classification: G21, K42, O17
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