Published 11 February 2019

Does the countryside lack cash (funding)?

– The impact of public bank loans on firm growth and its dependence on location

Increasing the amount of credit available via public bank loans to firms, can increase economic growth, but the results might depend on where the firm is located. Currently, there is limited knowledge of where additional credit creates the most economic growth. This study finds larger effects from public bank loans to firms in urban areas compared to rural areas, suggesting that firms in urban areas have a larger growth potential.

We investigate whether public policies that aim to reduce credit constraints for small and medium-sized enterprises (SMEs) have different impacts on firms located in different types of regions. Using loan data from the state-owned Swedish bank Almi and combining coarsened exact matching with difference-in-difference regressions, we find positive but heterogeneous effects of loans on firm growth. Firms in urban regions are found to be less credit-constrained compared to firms located in other regions. However, the impact from receiving a public loan on firm growth is stronger for SMEs
residing in major cities compared to firms in other regions. These results have important implications, suggesting that an evaluation of policies that are targeted to reduce credit constraints should take firm location into account.

Title
Does the countryside lack cash (funding)? – The impact of public bank loans on firm growth and its dependence on location

Serial number
WP 2019:01

Reference number
2018/160

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