Credit Allocation under Economic Stimulus: Evidence from China
56 Pages Posted: 1 Nov 2016 Last revised: 4 Sep 2018
Date Written: August 20, 2018
We study credit allocation across firms and its real effects during China's economic stimulus plan of 2009-2010. We match confidential loan-level data from the 19 largest Chinese banks with firm-level data on manufacturing firms. We find that the stimulus-driven credit expansion significantly affected firm borrowing, investment, and employment. It disproportionately favored state-owned firms and firms with lower marginal product of capital, reversing the process of capital reallocation towards private firms that characterized China high growth before 2008. We rationalize these findings in a dynamic model with heterogeneous firms and financial frictions.
Keywords: Misallocation, Reallocation, Banking, Growth, Firm Investment, Employment
JEL Classification: G30, O16, O23
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