Credit Constraints, Labor Productivity and the Role of Regional Institutions: Evidence from Manufacturing Firms in Europe

56 Pages Posted: 2 Dec 2020

See all articles by monica brezzi

monica brezzi

affiliation not provided to SSRN

Roberto Ganau

University of Padua

Kristina Maslauskaite

affiliation not provided to SSRN

Andrés Rodríguez-Pose

London School of Economics & Political Science (LSE) - London School of Economics

Date Written: November 1, 2020

Abstract

This paper examines the relationship between credit constraints − proxied by the investment-tocash flow sensitivity – and firm-level economic performance − defined in terms of labor productivity – during the period 2009-2016, using a sample of 22,380 manufacturing firms from 11 European countries. It also assesses how regional institutional quality affects productivity at the level of the firm both directly and indirectly. The empirical results highlight that credit rationing is rife and represents a serious barrier for improvements in firm-level productivity and that this effect is far greater for micro and small than for larger firms. Moreover, high-quality regional institutions foster productivity and help mitigate the negative credit constraints-labor productivity relationship that limits the economic performance of European firms. Dealing with the European productivity conundrum thus requires greater attention to existing credit constraints for micro and small firms, although in many areas of Europe access to credit will become more effective if institutional quality is improved.

JEL Classification: C23, D24, G32, H41, R12

Suggested Citation

brezzi, monica and Ganau, Roberto and Maslauskaite, Kristina and Rodríguez-Pose, Andrés, Credit Constraints, Labor Productivity and the Role of Regional Institutions: Evidence from Manufacturing Firms in Europe (November 1, 2020). CEPR Discussion Paper No. DP15430, Available at SSRN: https://ssrn.com/abstract=3737563

Monica Brezzi (Contact Author)

affiliation not provided to SSRN

Roberto Ganau

University of Padua ( email )

Via 8 Febbraio
Padova, Vicenza 2-35122
Italy

Kristina Maslauskaite

affiliation not provided to SSRN

Andrés Rodríguez-Pose

London School of Economics & Political Science (LSE) - London School of Economics ( email )

United Kingdom

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