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

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 innovationbased 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.

Cross-border investments and uncertainty: Firm-level evidence

“…Our empirical results suggest a cleansing effect of uncertainty shocks. The literature on cleansing effect demonstrated that during recesssions less productive firms exit from the mar-ket while the most productive survive (Caballero and Hammour, 1994;Foster et al, 2016;Osotimehin and Pappadà, 2016;Aghion et al, 2019). We do not directly measure productivity of firms in our database, but if we proxy it by the return of FDI, our results suggest a cleansing effect too.…”

The Provision of Long-Term Credit and Firm Growth in Developing Countries

“…Extending the capability design of capital is typically seen to be the basis of substantial employment expansion and firm growth because LTC contributes to faster employment growth, significant welfare, and the stability of the business in two favorable ways-by minimizing rollover challenges for borrowers and by improving the availability of LTC tools. This allows employees and businesses to respond life-cycle risks (Aghion et al, 2019). Consequently, the above discussion leads to the establishment of the following hypothesis:…”

“…Botev, Égert, and Jawadi (2019) have examined the fact that organizations that have access to finance are more likely to experience employment growth than those that do not have access to finance. The research conducted by Aghion, Bergeaud, Cette, Lecat, and Maghin (2019) has stated that the relationship between bank credit and employment growth can be determined with the help of credit bureaus that act as an exogenous shock for the supply of credit. This also leads to employment growth of up to 5%, compared to countries where CB has not been introduced yet.…”

“…According to Aghion et al (2019), an STC is a form of credit that is developed to support short-term personal credit, as well as business and firm capital. According to Cecchetti and Kharroubi (2019), this directly impacts levels of employment.…”

Innovation Dynamics and Financial Stability: A European Union Perspective

“…Long-term interest rates are generally used to account for financial stability since they encompass the effects derived from the behavior of risk premia and the issuing of government debt (Aghion et al 2012(Aghion et al , 2019Popov, 2017). This financial relationship is controlled through several macroeconomic variables describing the social structure of countries: the Gini Index (GINI) -as a measure of inequality, social expenditure, as well as the levels of education (EDU) and unemployment (UNEM) (Cozzens & Kaplinsky, 2009).…”