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Misallocation and access to subsidized credit: Can the Brazilian Development Bank target credit-constrained firms?

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  • Vaz, Paulo Henrique
  • Zambalde, Guilherme

Abstract

The Brazilian Development Bank (BNDES) strongly increased its subsidized credit disbursements from mid-2000’s to mid-2010’s. We take advantage of a BNDES firm size reclassification in 2010 as a plausibly exogenous shock in access to subsidized credit to study BNDES’ ability to target credit-constrained firms. Our first result is that BNDES-subsidized credit does impact firms’ capital wedges (distortions relative to optimal allocation). Our main result suggests that BNDES was unable to direct its increased credit flows toward firms that contribute the most to the economy, suggesting that it may not be able to target credit-constrained firms.

Suggested Citation

  • Vaz, Paulo Henrique & Zambalde, Guilherme, 2025. "Misallocation and access to subsidized credit: Can the Brazilian Development Bank target credit-constrained firms?," Economics Letters, Elsevier, vol. 256(C).
    • Handle: RePEc:eee:ecolet:v:256:y:2025:i:c:s0165176525004689
    DOI: 10.1016/j.econlet.2025.112631
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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