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The Missing Link Between Financial Constraints and Productivity

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  • Marialuz Moreno Badia
  • Veerle Slootmaekers

Abstract

The global financial crisis has reopened the debate on the potential spillover effects from the financial sector to the real economy. This paper adds to that debate by providing new evidence on the link between finance and firm-level productivity, focusing on the case of Estonia. We contribute to the literature in two important respects: (i) we look explicitly at the role of financial constraints; and (ii) we develop a methodology that corrects for the misspecification problems of previous studies. Our results indicate that young and highly indebted firms tend to be more financially constrained. Overall, a large number of firms shows some degree of financial constraints, with firms in the primary sector being the most constrained. More importantly, we find that financial constraints do not lower productivity for most sectors.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/72.

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Length: 39
Date of creation: 01 Apr 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/72

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Keywords: Productivity; Financial sector; Nonbank financial sector; Credit expansion; Private investment; Corporate sector; Economic models; equation; correlation; statistics; probability; standard errors; equations; autocorrelation; level productivity; capital intensity; cost of capital; markov process; polynomial; outliers; capital stock; capital market; logarithm; significance level; econometrics; capital goods; capital markets; capital accumulation; empirical model; statistic; heteroscedasticity; foreign capital; capital formation; optimization; bootstrap; capital ratio; linear model; empirical specification; estimation procedure; capital market imperfections; private investors; global capital flows; stock market; capital controls; survey; financial securities; predictions; statistical significance; external capital; outlier; capital growth; sample selection; random walk; correlations; functional form; standard deviation; surveys; measurement errors; sample size; credit rationing; gross capital formation; capital flows; missing observations;

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References

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Cited by:
  1. Ayadi, Rym & De Groen, Willem Pieter, 2014. "Micro-, Small- and Medium-Sized Enterprises with High-Growth Potential in the Southern Mediterranean: Identifying Obstacles and Policy Responses," CEPS Papers, Centre for European Policy Studies 8796, Centre for European Policy Studies.
  2. Martin Pospisil & Jiri Schwarz, 2014. "Bankruptcy, Investment, and Financial Constraints: Evidence from a Post-Transition Economy," Working Papers, Czech National Bank, Research Department 2014/01, Czech National Bank, Research Department.
  3. Minjia Chen & Alessandra Guariglia, . "Financial constraints and firm productivity in China: do liquidity and export behavior make a difference?," Discussion Papers 11/09, University of Nottingham, GEP.
  4. Chen, Minjia & Guariglia, Alessandra, 2013. "Internal financial constraints and firm productivity in China: Do liquidity and export behavior make a difference?," Journal of Comparative Economics, Elsevier, vol. 41(4), pages 1123-1140.
  5. Veerle Miranda & Marialuz Moreno Badia & Ilke Van Beveren, 2012. "Globalization drives strategic product switching," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 148(1), pages 45-72, April.

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