2020 Conference on Firms, Trade and Development - Jing Cai | Summary and Q&A

TL;DR

Improved access to credit has both direct and indirect effects on SME growth, but also leads to negative spillover effects on competitor firms, with potential positive effects on consumers.

Key Insights

• 🖤 Lack of credit is a major growth barrier for SMEs in developing countries, and this study provides insights into the direct and indirect effects of improved financial access on SME growth.
• 🥺 Improved access to credit has a positive direct effect on firm growth, but it also leads to negative spillover effects on competitor firms, indicating a reallocation of demand within the market.
• 💳 The consumer surplus resulting from the improved access to credit suggests a positive impact on consumers.

Transcript

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Questions & Answers

Q: What is the main focus of this study?

The study focuses on estimating the direct and indirect effects of improved access to credit on SME growth, with a specific focus on SMEs in China.

Q: How was the study conducted?

The study randomized access to a new loan product for SMEs in China and analyzed the direct and indirect effects on firm growth using regression analysis.

Q: What were the main findings of the study?

The study found a positive direct effect of improved credit access on firm growth, but also a negative spillover effect on competitor firms. This suggests a reallocation of demand within the market.

Q: Did the study take into account the impact on consumers?

Yes, the study estimated the consumer surplus resulting from the improved access to credit, which indicated a positive impact on consumers.

Q: Were there any differences in the effects based on firm characteristics?

The study found suggestive evidence that firms with larger sizes and better-educated business owners benefited more from the program, but further analysis is needed to confirm these findings.

Q: Did the study consider the potential misallocation of resources?

The study did not directly estimate misallocation, but future analysis will explore whether there are differences in borrower characteristics that may indicate misallocation.

Summary & Key Takeaways

• Lack of credit is a major growth barrier for firms, especially SMEs in developing countries, due to constraints in microfinance and lack of collateral for formal funding.

• This study aims to estimate the direct and indirect effects of improved access to credit on SME growth by analyzing a loan program for SMEs in China.

• The results show a positive direct effect on firm growth but also a negative spillover effect on competitor firms, indicating a reallocation of demand within the market.