On Government Intervention in the Small-Firm Credit Market and its Effect on Economic Performance

38 Pages Posted: 30 Jul 2007

See all articles by Ben R. Craig

Ben R. Craig

Federal Reserve Bank of Cleveland; Deutsche Bundesbank

William E. Jackson

Culverhouse College of Business, University of Alabama

James B. Thomson

University of Akron

Date Written: March 2007

Abstract

In this paper we empirically test whether the Small Business Administration's main guaranteed lending program - the 7(a) program - has a greater impact on economic performance in low income markets than in others. This hypothesis is predicated on our previous research (Craig, Jackson, and Thomson 2007b), where we investigate aggregate SBA guaranteed lending. In that research we found that the overall impact of SBA guaranteed lending on economic performance is significant and positive in low-income markets.

Using local labor market employment rates as our measure of economic performance, we find a quantitatively similar positive impact of SBA 7(a) guaranteed lending. This impact on economic performance is also significantly larger in low-income areas than in other areas. This result suggests that the 7(a) program, which is the largest SBA guaranteed lending program, is also the main contributor to the positive impact of SBA guaranteed lending on local market economic performance.

Keywords: credit rationing, employment rates, small business, credit markets, loan guarantees

JEL Classification: G38, H81, O16

Suggested Citation

Craig, Ben R. and Jackson, William E. and Thomson, James B., On Government Intervention in the Small-Firm Credit Market and its Effect on Economic Performance (March 2007). FRB of Cleveland Working Paper No. 07-02. Available at SSRN: https://ssrn.com/abstract=1003304 or http://dx.doi.org/10.2139/ssrn.1003304

Ben R. Craig

Federal Reserve Bank of Cleveland ( email )

PO Box 6387
Cleveland, OH 44101
United States
216-579-2061 (Phone)
216-579-3050 (Fax)

Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

William E. Jackson (Contact Author)

Culverhouse College of Business, University of Alabama ( email )

Tuscaloosa, AL 35487-0225
United States
205.348.6217 (Phone)
205.348.6695 (Fax)

James B. Thomson

University of Akron ( email )

Akron, OH 44325-4803
United States

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