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The Causal Impact of Covid-19 Government-backed Loans on MSMEs Liquidity and Earnings

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  • Cerda, Maikol
  • Gertler, Paul
  • Higgins, Sean
  • Montoya, Ana María
  • Parrado, Eric
  • Undurraga, Raimundo

Abstract

We conducted two randomized controlled trials (RCTs) to evaluate the impact of government-guaranteed loans offered by the Chilean and Colombian governments. The public funds of these programs greatly expanded following the start of the Covid-19 pandemic and offered loans to Micro, Small and Medium Enterprises to mitigate the negative impact of the shock. Through a collaboration with private banks, we launched two experiments which offered loans to a sub-set of the 10,072 Chilean and 3,079 Colombian small businesses that took part in our experiments. Most of these firms had previously applied for a loan during the pandemic--but prior to the RCTs--but were rejected by banks due to their risk analysis of the firms. With take-up rates of 27% and 29%, respectively, we find that Covid-19 loans had a significant positive impact on the total liquidity that treated MSMEs could access: total liquidity with the formal banking system increased by 15.7% (statistically significant at the 1% level). The results of our RCTs will inform Latin American governments concerning their strategies to support MSMEs via government-backed loan programs and will shape similar public policies in the future.

Suggested Citation

  • Cerda, Maikol & Gertler, Paul & Higgins, Sean & Montoya, Ana María & Parrado, Eric & Undurraga, Raimundo, 2023. "The Causal Impact of Covid-19 Government-backed Loans on MSMEs Liquidity and Earnings," IDB Publications (Working Papers) 12710, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:12710
    DOI: http://dx.doi.org/10.18235/0004754
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    References listed on IDEAS

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    More about this item

    Keywords

    RCT; Government-guaranteed loans; COVID-19 pandemic; Eventstudy; Impact Evaluation;
    All these keywords.

    JEL classification:

    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • P52 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

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