Credit Supply and Productivity Growth

84 Pages Posted: 6 Apr 2018

Multiple version iconThere are 3 versions of this paper

Date Written: March 2018

Abstract

We study the impact of bank credit supply on firm output and productivity. By exploiting a matched firm-bank database which covers all the credit relationships of Italian corporations over more than a decade, we measure idiosyncratic supply-side shocks to firms' credit availability. We use our data to estimate a production model augmented with financial frictions and show that an expansion in credit supply leads firms to increase both their inputs and their output (value added and revenues) for a given level of inputs. Our estimates imply that a credit crunch will be followed by a productivity slowdown, as experienced by most OECD countries after the Great Recession. Quantitatively, the credit contraction between 2007 and 2009 could account for about a quarter of the observed decline in Italy's total factor productivity growth. The results are robust to an alternative measurement of credit supply shocks that uses the 2007-08 interbank market freeze as a natural experiment to control for assortative matching between borrowers and lenders. Finally, we investigate possible channels: access to credit fosters IT-adoption, innovation, exporting, and the adoption of superior management practices.

Keywords: credit supply, productivity, export, management, IT adoption

JEL Classification: D22, D24, G21

Suggested Citation

Manaresi, Francesco and Pierri, Nicola, Credit Supply and Productivity Growth (March 2018). BIS Working Paper No. 711. Available at SSRN: https://ssrn.com/abstract=3153264

Francesco Manaresi (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Nicola Pierri

Stanford University ( email )

Stanford, CA 94305
United States

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