Coase Lecture ‐ The Inverted‐U Relationship between Credit Access and Productivity Growth

31 Pages Posted: 20 Dec 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

Rémy Lecat

Banque de France

Hélène Maghin

Banque de France

Date Written: January 2019

Abstract

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 firm‐level dataset. We first show evidence of an inverted‐U relationship between credit constraints and productivity growth when we aggregate our data at the 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 experience lower exit rates, particularly the least productive firms among them. To support these findings, we exploit the 2012 Eurosystem's Additional Credit Claims programme as a quasi‐experiment that generated an exogenous extra supply of credits for a subset of incumbent firms.

Suggested Citation

Aghion, Philippe and Bergeaud, Antonin and Cette, Gilbert and Lecat, Rémy and Maghin, Hélène, Coase Lecture ‐ The Inverted‐U Relationship between Credit Access and Productivity Growth (January 2019). Economica, Vol. 86, Issue 341, pp. 1-31, 2019. Available at SSRN: https://ssrn.com/abstract=3304110 or http://dx.doi.org/10.1111/ecca.12297

Philippe Aghion (Contact Author)

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

Banque de France ( email )

Paris
France

Gilbert Cette

Banque de France ( email )

Paris
France

Rémy Lecat

Banque de France

Paris
France

Hélène Maghin

Banque de France

Paris
France

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