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The Inverted-U Relationship Between Credit Access and Productivity Growth

Author

Listed:
  • Aghion, Philippe
  • Bergeaud, Antonin
  • Cette, Gilbert
  • Lecat, Rémy
  • Maghin, Helene

Abstract

In this paper 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 innovation-base 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 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 experienced lower exit rates, particularly the least productive firms among them. To confirm our results, we exploit the 2012 Eurosystem's Additional Credit Claims (ACC) program as a quasi-experiment that generated exogenous extra supply of credits for a subset of incumbent firms.

Suggested Citation

  • Aghion, Philippe & Bergeaud, Antonin & Cette, Gilbert & Lecat, Rémy & Maghin, Helene, 2018. "The Inverted-U Relationship Between Credit Access and Productivity Growth," CEPR Discussion Papers 13212, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:13212
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    References listed on IDEAS

    as
    1. Philippe Aghion & Diego Comin & Peter Howitt & Isabel Tecu, 2016. "When Does Domestic Savings Matter for Economic Growth?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(3), pages 381-407, August.
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    More about this item

    Keywords

    credit constraint; firms; growth; interest rate; productivity;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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