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CEP discussion paper
Relaxing Credit Constraints in Emerging Economies: The Impact of Public Loans on the Performance of Brazilian Manufacturers
Filipe Lage de Sousa and Gianmarco I. P. Ottaviano October 2014
Paper No' CEPDP1309:
Full Paper (pdf)

JEL Classification: G28; O38; H25

Tags: credit constraints; firm performance; firm productivity; firm investment; public loans

n emerging economies credit constraints are often perceived as one of the most important market frictions hampering firm innovation and productivity growth in manufacturing. Huge amounts of public money are devoted to the removal of such constraints but their effectiveness is still subject to an intense policy debate. This paper contributes to this debate by analyzing the effects of the Brazilian Development Bank (BNDES) loans. Exploiting the unique features of a dataset on BNDES loans to Brazilian manufactures, it finds that: (a) credit constraints facing Brazilian manufacturing firms are real, especially for firms that apply to BNDES repeatedly; (b) BNDES funding has been successful in relaxing those credit constraints; (c) BNDES support has allowed granted firms to match the performance of similar unconstrained firms, at least in the short run, but not to outperform them.