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The World Bank Economic Review Advance Access published online on October 4, 2007
The World Bank Economic Review, doi:10.1093/wber/lhm016
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© The Author 2007. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / THE WORLD BANK. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org

Creditor Protection and Credit Response to Shocks

Arturo José Galindo and Alejandro Micco

Arturo José Galindo (corresponding author) is the Economic Advisor of the Banking Association of Colombia and Associate Professor at Universidad de los Andes; his email address is ajgalindo{at}gmail.com
Alejandro Micco is Capital Markets Director at the Ministry of Finance of Chile; his email address is amicco{at}hacienda.gov.cl

JEL codes: G31, G33, K2

This article studies the relationship between creditor protection and credit responses to macroeconomic shocks. Using a data set on legal determinants of finance in a panel of data on aggregate credit growth for 79 countries during 1990–2004, it is shown that credit is more responsive to external shocks in countries with weak legal creditor protection and weak enforcement. The results are statistically and economically significant and robust to alternative measures of creditor protection, to the inclusion of variables that reflect different stages of economic development, to the restriction of the sample to only developing economies, to the controls for systemic crises, to alternative shock measures, and to vector autoregressive specifications.


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