The Inverted-U Relationship Between Credit Access and Productivity Growth

41 Pages Posted: 18 Oct 2018

See all articles by Philippe Aghion

Philippe Aghion

College de France and London School of Economics and Political Science, Fellow; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Antonin Bergeaud

Banque de France

Gilbert Cette

Banque de France

Remy Lecat

Banque de France

Helene Maghin

KU Leuven - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 2018

Abstract

In this paper, we identify two counteracting effects of credit access on productivity growth: on the one hand, better access to credit makes it easier for entrepreneurs to innovate; on the other hand, better credit access allows less efficient incumbent firms to remain longer on the market, thereby discouraging entry of new and potentially more efficient innovators. We first develop a simple model of firm dynamics and innovation-based growth with credit constraints, where the above two counteracting effects generate an inverted-U relationship between credit access and productivity growth. Then, we test our theory on a comprehensive French manufacturing firmlevel dataset. We first show evidence of an inverted-U relationship between credit constraints and productivity growth when we aggregate our data at sectoral level. We then move to firm-level analysis, and show that incumbent firms with easier access to credit experience higher productivity growth, but that they also experienced lower exit rates, particularly the least productive firms among them. To confirm our results, we exploit the 2012 Eurosystem's Additional Credit Claims (ACC) program as a quasi experiment that generated exogenous extra supply of credits for a subset of incumbent firms.

Keywords: credit constraint, firms, growth, interest rate, productivity

JEL Classification: G21, G32, O40, O47

Suggested Citation

Aghion, Philippe and Bergeaud, Antonin and Cette, Gilbert and Lecat, Remy and Maghin, Helene, The Inverted-U Relationship Between Credit Access and Productivity Growth (October 2018). Banque de France Working Paper No. 696. Available at SSRN: https://ssrn.com/abstract=3267407 or http://dx.doi.org/10.2139/ssrn.3267407

Philippe Aghion

College de France and London School of Economics and Political Science, Fellow ( email )

London
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Antonin Bergeaud (Contact Author)

Banque de France ( email )

Paris
France

Gilbert Cette

Banque de France ( email )

Paris
France

Remy Lecat

Banque de France ( email )

Paris
France

Helene Maghin

KU Leuven - Department of Economics ( email )

Leuven, B-3000
Belgium

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