The Missing Link Between Financial Constraints and Productivity

Author/Editor: Moreno Badia, Marialuz ; Slootmaekers, Veerle
Publication Date: April 01, 2009
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: The global financial crisis has reopened the debate on the potential spillover effects from the financial sector to the real economy. This paper adds to that debate by providing new evidence on the link between finance and firm-level productivity, focusing on the case of Estonia. We contribute to the literature in two important respects: (i) we look explicitly at the role of financial constraints; and (ii) we develop a methodology that corrects for the misspecification problems of previous studies. Our results indicate that young and highly indebted firms tend to be more financially constrained. Overall, a large number of firms shows some degree of financial constraints, with firms in the primary sector being the most constrained. More importantly, we find that financial constraints do not lower productivity for most sectors.
Series: Working Paper No. 09/72
Subject(s): Financial sector | Estonia | Productivity | Nonbank financial sector | Credit expansion | Private investment | Corporate sector | Economic models

Author's Keyword(s): financing constraints | productivity | SMEs
Publication Date: April 01, 2009
Format: Paper
Stock No: WPIEA2009072 Pages: 39
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