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

Author

Listed:
  • Andrew T. Young

    (West Virginia University, College of Business and Economics)

  • Matthew J. Higgins

    (Georgia Institute of Technology & NBER)

  • Donald J. Lacombe

    (West Virginia University, College of Business and Economics)

  • Briana Sell

    (Georgia Institute of Technology)

Abstract

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 and 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%.

Suggested Citation

  • Andrew T. Young & Matthew J. Higgins & Donald J. Lacombe & Briana Sell, 2014. "The Direct and Indirect Effects of Small Business Administration Lending on Growth: Evidence from U.S. County-Level Data," Working Papers 14-35, Department of Economics, West Virginia University.
  • Handle: RePEc:wvu:wpaper:14-35
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    File URL: http://busecon.wvu.edu/phd_economics/pdf/14-35.pdf
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    References listed on IDEAS

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    Keywords

    Small Business Administration; guaranteed loans; economic growth; income growth; entrepreneurship; US counties; spatial econometrics; spillovers;

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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