Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/110151 
Year of Publication: 
2015
Series/Report no.: 
IZA Discussion Papers No. 8887
Publisher: 
Institute for the Study of Labor (IZA), Bonn
Abstract: 
In this paper we theoretically and empirically examine how the interaction between the formal court system and the informal loan network affects a household's decision to start a business. We find that when the formal court system is weak, expansion of informal credit network leads to the proliferation of business. However, with a sufficiently strong court system, expansion of credit network has a negative effect on business prospects. This result is explained by the contradictions between formal laws and norms used by informal networks. Our result remains robust after controlling for a variety of household and district level characteristics.
Subjects: 
informal network
court
formal institution
entrepreneurship
JEL: 
K12
L26
O17
Document Type: 
Working Paper

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