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The Direct and Indirect Effects of Small Business Administration Lending on Growth: Evidence from U.S. County-Level Data

Listed author(s):
  • Andrew T. Young
  • Matthew J. Higgins
  • Donald J. Lacombe
  • Briana Sell

Conventional wisdom suggests that small businesses are innovative engines of Schumpetarian growth. However, as small businesses, they are likely to face credit rationing in financial markets. If true then policies that promote lending to small businesses may yield substantial economy-wide returns. We examine the relationship between Small Business Administration (SBA) lending and local economic growth using a spatial econometric framework across a sample of 3,035 U.S. counties for the years 1980 to 2009. We find evidence that a county's SBA lending per capita is associated with direct negative effects on its income growth. We also find evidence of indirect negative effects on the growth rates of neighboring counties. Overall, a 10% increase in SBA loans per capita is associated with a cumulative decrease in income growth rates of about 2%.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 20543.

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Date of creation: Oct 2014
Handle: RePEc:nbr:nberwo:20543
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