Transmisión de los niveles de violencia a las decisiones microeconómicas de crédito

This document analyzes the hypothesis that high levels of criminal violence stren-gthens the obstacles that prevent the development of formal credit markets. It develops and solves a dynamic and stochastic theoretical model that internalizes the levels of violence in the credit choices of a representative agent. The theoretical results state that the size of the demand for formal credit shrinks in a state of relatively high violence. Additionally, it shows that the costs of violence are not uniform but U-shaped. The empirical analysis employs data from Mexico, where both credit markets have been historically underdeveloped and violence have reached unprecedented levels. The econometric results are consistent with the theore-tical findings. When the level of violence increases, the probability of participating in formal credit markets drops. The effect is larger for low and high-income sectors than for those in the middle-income class. The success of financial development policies critically depends on the extent to which their design effectively internalizes the prevailing levels of violence.