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Credit Constraints in Latin America: An Overview of the Micro Evidence

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  • Arturo Galindo

    ()

  • Fabio Schiantarelli

Abstract

This paper summarizes and discusses new evidence on the nature, extent, evolution and consequences of financing constraints in Latin America; this evidence is drawn from a recent series of papers. The countries covered are Argentina, Colombia, Costa Rica, Ecuador, Mexico, and Uruguay. All the new contributions share the characteristics of being based on micro data. Most of the data sources are firms’ balance sheets. For Argentina information on debt contracts and credit history is also available, while for Costa Rica personal information on entrepreneurs was also collected. Some of the papers investigate the determinants of firms’ financing choices, and the consequences of access or debt composition on performance. Other papers attempt to assess the severity of financing constraints, by focusing on firms’ investment choices. All the papers (but one) were part of the project “Determinants and Consequences of Financial Constraints Facing Firms in Latin America and the Caribbean,” financed by the IADB. However, other recent micro-econometric contributions are discussed as well. The results suggest that access to credit (and its cost) depends not only upon favorable balance sheet characteristics, but also upon the closeness of the relationship between firms and banks as well as credit history. Access to long-term loans and to loans denominated in foreign currency is positively related to the size and tangibility of firms’ assets and negatively related to measures of country risk. Moreover, firms that have foreign participation appear to be less financially constrained in their investment decisions. The same is true for firms that are associated with business groups. On the whole, it appears that financial liberalization tends to relax financial constraints for firms that were previously constrained, while financial crises tighten them. However, firms that have more access to external sources of finance via, for instance, exports or ownership links, appear to suffer less in the post-crisis period. The paper concludes with a discussion of the policy implications of these results.

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Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4305.

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Date of creation: Sep 2002
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Handle: RePEc:idb:wpaper:4305

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Cited by:
  1. Pedro Elosegui & Paula Español & Demian Panigo & Emilio Blanco, 2007. "The Asymmetrical Impact of Restrictions to Financing in Argentina. Comparison by Sector, Size and Origin of Ownership (1995-2003)," BCRA Working Paper Series 200724, Central Bank of Argentina, Economic Research Department.
  2. Tomasz Mickiewicz & Kate Bishop & Urmas Varblane, 2004. "Financial Constraints in Investment - Foreign Versus Domestic Firms. Panel Data Results From Estonia, 1995-1999," William Davidson Institute Working Papers Series 2004-648, William Davidson Institute at the University of Michigan.
  3. Crisóstomo, Vicente Lima & López-Iturriaga, Félix Javier & Vallelado González, Eleuterio, 2014. "Nonfinancial companies as large shareholders alleviate financial constraints of Brazilian firm," Emerging Markets Review, Elsevier, vol. 18(C), pages 62-77.
  4. Linda Goldberg, 2004. "Financial-sector foreign direct investment and host countries: new and old lessons," Staff Reports 183, Federal Reserve Bank of New York.
  5. Linda S. Goldberg, 2007. "Financial sector FDI and host countries: new and old lessons," Economic Policy Review, Federal Reserve Bank of New York, issue Mar, pages 1-17.
  6. Natalia Isachenkova & Tomasz Mickiewicz, 2004. "Ownership Characteristics and Access to Finance: Evidence from a Survey of Large Privatised Companies in Hungary and Poland," William Davidson Institute Working Papers Series 2004-666, William Davidson Institute at the University of Michigan.
  7. Pedro Elosegui & Paula Español & Demian Panigo & Juan Sotes Paladino, 2006. "Methodological Alternatives for the Analysis of Financial Constraints in Argentina," BCRA Working Paper Series 200602, Central Bank of Argentina, Economic Research Department.
  8. César A. Corredor V., 2009. "Credit Chanel in developing countries: The case of Colombia," REVISTA DE ECONOMÍA DEL CARIBE, UNIVERSIDAD DEL NORTE.

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