| Summary: | There exists an extensive literature related to creditor protection and its relation to the financial market, but few if any studies try to asses its net impact on the stability of the economy. In this paper we investigate the effects of creditor protection on the business cycle, and the economy during times of financial distress. More precisely we investigate how creditor protection is related to the recovery from financial crises, and how it affects growth volatility. We find support for our hypothesis that creditor protection is positively related to business cycle volatility and that this effect might work through a destabilising of the credit market.
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