UNU-MERIT Working Papers Series
Institutions and credit
Kristine Farla #2012-038It is well-known that the extent of credit lent to private agents
differs widely between countries. The `financial deepening' of the
economy offers opportunities as well as financial risks. This study
investigates the extent to which institutional characteristics are re-
lated to countries' level of credit depth. The findings suggest that the
formalization of property rights, contracting, and competition
institutions is positively related to an increase in the level of credit
to the private sector. This result remains robust when controlling for
the effect of financial policy. The effect of institutional
characteristics on banks' lending capacity and investment is mixed.
However, overall, institutional formalization has a positive impact on
credit deepening and investment.
Keywords: Institutions, Financial Development, Property Rights,
Contract, Competition
JEL Classification: E44, G18, O11, O43
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