Credit%2C%20Labor%20Informality%20and%20Firm%20Performance%20in%20Colombia

Working Papers

Credit, Labor Informality and Firm Performance in Colombia


CODE: IDB-WP-325
AUTHOR(s): Caro, Lorena , Galindo, Arturo , Melendez, Marcela
PUBLISHED: June 2012
LANGUAGE: English
RELATED TOPICS: Finance
DOWNLOAD FILE IN: English

Abstract:

This paper explores the links between labor formality, access to credit and firm performance in Colombia using Annual Manufacturing Survey data for the period 2000-2009. A significant though small relationship is found between access to credit and informality. The results suggest that a 10 percent increase in the ratio of credit to sectoral output increases labor formality between 0.76 and 1.14 percentage points. This effect vanishes as a firm’s financial constraint increases. The paper also reports a strong correlation between labor formality and firm performance measured as output and employment growth. A one percentage point increase in labor formality is associated with an 8.5 percent increase in output and an 11 percent increase in employment growth.

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