Does Access to External Finance Improve Productivity? Evidence from a Natural Experiment
Alexander W. Butler
Rice University - Jesse H. Jones Graduate School of Business
March 4, 2009
We study the relation between access to finance and productivity. Our contribution to the literature is a clean identification of a causal effect of access to finance on productivity. Specifically, we exploit an exogenous shift in demand for a product to expose how producers adapt their productivity in the presence of varying levels of access to finance. We use a triple differences testing approach and find that production increases the most over the sample period in areas with relatively strong access to finance, even in comparison to a control group. This result is statistically significant, and robust to a variety of controls, alternative variables, and tests. The causal effect of access to finance on productivity that we find speaks to the larger role of finance in economic growth.
Number of Pages in PDF File: 53
Keywords: growth, finance, banking, productivity, crop yields, ethanol
JEL Classification: G21, D24, Q12, Q14working papers series
Date posted: January 17, 2008 ; Last revised: March 5, 2009
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