The Journal of Legal Technology Risk Management
2009 - Issue 4.2
Scholars have alternately identified geography, international trade, and institutions as the main determinants of economic growth. The economic literature identifies the quality of institution, specifically the quality of the legal and financial system, as an essential factor in creating and enhancing economic growth. However, the link between the legal and financial system is still controversial. This paper outlines a specific group of events involving payroll debit loans in Brazil, and adds evidence of the relationship between the legal and the financial systems. The paper uses empirical evidence to study the rise of Brazilian payroll debit loans as an instance of variation in the institutional setting. First, I show that payroll debit loan regulation reduced the interest rates charged by the financial institutions and increased the amount of transactions as well as the sum of money. Second, I show that a judicial decision with no formal precedential effect nevertheless lead banks to restrict the amount of money of the payroll debit loan, thereby increasing its interest rates. These findings lead to the conclusion that the legal and the financial systems are strongly related.
2009 - Issue 4.2
Scholars have alternately identified geography, international trade, and institutions as the main determinants of economic growth. The economic literature identifies the quality of institution, specifically the quality of the legal and financial system, as an essential factor in creating and enhancing economic growth. However, the link between the legal and financial system is still controversial. This paper outlines a specific group of events involving payroll debit loans in Brazil, and adds evidence of the relationship between the legal and the financial systems. The paper uses empirical evidence to study the rise of Brazilian payroll debit loans as an instance of variation in the institutional setting. First, I show that payroll debit loan regulation reduced the interest rates charged by the financial institutions and increased the amount of transactions as well as the sum of money. Second, I show that a judicial decision with no formal precedential effect nevertheless lead banks to restrict the amount of money of the payroll debit loan, thereby increasing its interest rates. These findings lead to the conclusion that the legal and the financial systems are strongly related.
