Small and Medium Size Enterprises, Credit Supply Shocks, and Economic Recovery in Europe

Author/Editor: Nir Klein
Publication Date: June 10, 2014
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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 limited access to bank credit in recent years has increased the pressure on small and medium size enterprises (SMEs), forcing them to scale down investment plans and production. This paper, which explores the macroeconomic implications of this channel, finds evidence that countries with high prevalence of SMEs tended to recover more slowly from the global financial crisis than their peers, implying that the interaction of the economic structure and access to bank financing plays a critical role in episodes of economic recovery. This conclusion is reinforced by a VAR estimation, which demonstrates that a negative credit supply shock applied to SMEs has an adverse effect on economic activity, and this impact is amplified in countries that have a high share of SMEs.
Series: Working Paper No. 14/98
Subject(s): Economic recovery | Europe | Business enterprises | Credit | Supply | External shocks | Panel analysis

Publication Date: June 10, 2014
ISBN/ISSN: 9781498303590/1018-5941 Format: Paper
Stock No: WPIEA2014098 Pages: 27
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