Unbundling Institutions for External Finance : Worldwide Firm-Level Evidence
The empirical literature on institutions and development has been challenged on grounds of reverse causality, measurement error in institutional indicators, and heterogeneity. This paper uses firm-level data across countries to confront these chall...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2015
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2015/06/24578640/unbundling-institutions-external-finance-worldwide-firm-level-evidence http://hdl.handle.net/10986/22160 |
| Summary: | The empirical literature on institutions
and development has been challenged on grounds of reverse
causality, measurement error in institutional indicators,
and heterogeneity. This paper uses firm-level data across
countries to confront these challenges. Instead of analyzing
ultimate outcomes, such as income levels where institutional
quality is likely endogenous, the focus is on firm-level
external finance. Moreover, institutions are “unbundled” to
explore how various types of institutions affect external
finance differently. The paper documents that micro firms
have significantly less access to external finance than
small and medium firms. General financial development and
contracting institutions that facilitate transactions
between private parties exert little effect, on average, on
firms’ access to external finance. In contrast, property
rights institutions that constrain political and economic
elites exhibit stronger positive association with access to
external finance. The analysis finds evidence of attenuation
bias associated with error in measuring institutions. For
leveling the playing field between elite and non-elite
firms (as proxied by firm size) in their access to external
finance, property rights institutions also figure more
prominently—with an important exception for the information
environment, a component of contracting institutions. The
results indicate that a specific channel through which
development is affected more by property rights institutions
rather than contracting institutions is external financing
for firms. |
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