2021

Take It to the (Public) Bank: The Efficiency of Public Bank Loans to Private Firms

Reprint No. 2021:17

Author(s): Anders KärnäYear: 2021 Title: German Economic Review Volume (No.): 22 (1) Pages: 27–62
Online article (restrictions may apply)


Incomplete capital markets and credit constraints for small and medium-sized enterprises (SMEs) are often considered obstacles to economic growth, thus motivating government interventions in capital markets. While such policies are common, it is less clear to what extent these interventions result in firm growth or to which firm interventions should be targeted. Using a unique dataset with information about state bank loans targeting credit-constrained SMEs in Sweden with and without complementary private bank loans, this paper contributes to the literature by studying how these loans affect the targeted firms for several outcome variables. The results suggest that the loans create a one-off increase in investments, with long-term, positive effects for sales and labor productivity but only for firms with 10 or fewer employees. Increased access to capital by firms can therefore produce increases in economic output but only in a specific type of firm. This insight is of key importance in designing policy if the aim is to increase economic growth.


Reference:
Kärne, Anders (2021), "Take It to the (Public) Bank: The Efficiency of Public Bank Loans to Private Firms". German Economic Review 22(1), 27–62.

Interdisciplinary European Studies

The European Union and the Return of the Nation State

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This book explores the complex and ever-changing relationship between the European Union and its member states. The recent surge in tension in this relationship has been prompted by the actions of some member state governments as they question fundamental EU values and principles and refuse to implement common decisions seemingly on the basis of narrowly defined national interests.

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