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The effects of institutional quality on formal and informal borrowing across high-, middle-, and low-income countries

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  • Lan Chu Khanh

Abstract

This paper examines the effects of institutional quality on financing choice of individual using a large dataset of 137,160 people from 131 countries. We classify borrowing activities into three categories, including formal, constructive informal, and underground borrowing. Although the result shows that better institutions aids the uses of formal borrowing, the impact of institutions on constructive informal and underground borrowing among three country sub-groups differs. Higher institutional quality improves constructive informal borrowing in middle-income countries but reduces the use of underground borrowing in high- and low-income countries.

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  • Lan Chu Khanh, 2019. "The effects of institutional quality on formal and informal borrowing across high-, middle-, and low-income countries," Papers 1903.07866, arXiv.org.
    • Handle: RePEc:arx:papers:1903.07866
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    References listed on IDEAS

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    1. Allen, Franklin & Qian, Meijun & Xie, Jing, 2019. "Understanding informal financing," Journal of Financial Intermediation, Elsevier, vol. 39(C), pages 19-33.
    2. Khoi, Phan Dinh & Gan, Christopher & Nartea, Gilbert V. & Cohen, David A., 2013. "Formal and informal rural credit in the Mekong River Delta of Vietnam: Interaction and accessibility," Journal of Asian Economics, Elsevier, vol. 26(C), pages 1-13.
    3. Allen, Franklin & Demirguc-Kunt, Asli & Klapper, Leora & Martinez Peria, Maria Soledad, 2016. "The foundations of financial inclusion: Understanding ownership and use of formal accounts," Journal of Financial Intermediation, Elsevier, vol. 27(C), pages 1-30.
    4. Panicos Demetriades & Siong Hook Law, 2006. "Finance, institutions and economic development," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(3), pages 245-260.
    5. Chong, Alberto & Gradstein, Mark, 2007. "Inequality and informality," Journal of Public Economics, Elsevier, vol. 91(1-2), pages 159-179, February.
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