Friday, January 13, 2012

The Impact of Public Credit Programs on Brazilian Firms


This paper analyzes the effectiveness of public credit lines in promoting the performances of Brazilian firms. We focus on the impact of the credit lines managed by BNDES and FINEP in fostering growth measured in terms of employment, labor productivity and export. For this purpose, we use a unique panel data set developed by the Instituto de Pesquisa Econômica Aplicada (IPEA), which includes information on both firm-level performances and access to public credit lines. This particular data setting allows us to use quasi-experimental techniques to control for selection bias when estimating the impact of the public credit lines. The core of our estimation strategy is based on a difference-in-differences technique, which we complement with matching methods for robustness check. Our results consistently show that access to public credit lines has a significant and robust positive impact on employment growth and exports, while we do not find evidence of a significant effect on our measure of productivity. Interestingly enough, our findings show that impact on exports is driven by the increase in export volumes among exporting firms, while no significant effect on the probability of becoming an exporter is detected.

Public credit plays an important role in supporting the Brazilian productive sector. Data show that the presence of the public sector in the banking sector is high. The largest state owned development bank –the Banco Nacional do Desenvolvimento (BNDES)– accounted for 11 percent of all outstanding credit in 2006. Considering that the state also owns two of the three largest commercial banks in Brazil, the percentage of outstanding credit accounted for stateowned banks increases to around 44 percent. Although the importance of the public sector in the Brazilian financial system has been broadly debated, not much has been said on the effectiveness of these policy instruments in improving the conditions of final beneficiaries of these resources.

This paper aims at shedding some light on the effectiveness of public credit programs in promoting the performances of the productive sector in Brazil. In particular, we focus on the impact of the credit lines managed by BNDES and FINEP in fostering growth measured in terms of employment, labor productivity and export. For this purpose, we use a unique panel data set developed by the Instituto de Pesquisa Econômica Aplicada (IPEA), which includes information on both firm-level performance and access to public credit lines. This particular data setting allows us to use quasi-experimental techniques to control for selection bias when estimating the impact of the public credit lines. The core of our estimation strategy is based on a difference-indifference technique, which we complement with matching methods for robustness check.

Our results consistently show that access to public credit lines has a significant and robust positive impact on employment growth and exports, while we do not find evidence of a signiicant effect on our measure of productivity. Interestingly enough, our findings show that impact on exports is driven by the increase in export volumes among exporting firms, while no significant effect on the probability of becoming an exporter is detected. 

The scope of this paper is mainly empirical and its contribution to the existing literature should be considered in this context. This means that we do not develop any formal model aimed at assessing the theoretical linkages between access to credit and the firm-level performances. However, we complement our empirical analysis with a brief discussion of these linkages in light of the existing literature. To put our paper into context, we also review the most recent impact evaluations of public programs with objectives and means similar to the ones of the credit lines we analyze.

The paper is structured as follows: after this introduction, section one provides a brief review on the justification of public credit program aimed at fostering firm performances and on the evidence that have been produced on the effectiveness of such programs. Section two discusses more in detail the main characteristics of public credit programs in Brazil, with particular emphasis on the credit lines managed by BNDES and FINEP. Section three describes the data we are using for our analysis, including a review of the main basic statistics of interest. Section four discusses our identification strategy, focusing on the approach we adopted to control for selection biases. Section five presents the results of our estimations. Finally, section six concludes and provides some policy recommendations.

World Bank. Joao Alberto DeNegri.Alessandro Maffioli.Cesar M. Rodriguez. Gonzalo VázquezWorking Papers.No. IDB-WP-293.December 2011


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