Consumer Credit Expansion in Open Economies

Advisor: Juliano Assunção

This work uses a quasi-experimental credit reform in Brazil to estimate credit multipliers and understand the channels through which financial deepening promotes economic growth. We use panel data for all 5,500 Brazilian municipalities and explore legal issues underlying the policy in order to quantify the overall impacts of an exogenous credit supply shock on local economies. The reform appears to have increased total credit, besides stimulating other banking services. Our findings also indicate an important income redistribution in favor of employees and the reduction of the informal sector. Furthermore, the analysis suggests that these effects are greater in less rural, less isolated, wealthier and more financially developed municipalities