Relaxing credit constraints in emerging economies: the impact of public loans on the productivity of Brazilian manufacturers

Abstract

In emerging economies credit constraints are often perceived as one of the most important market frictions hampering firm productivity growth in manufacturing. Huge amounts of public money are devoted to the removal of such constraints but its 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 credit constraints facing Brazilian manufacturing firms are real, in particular for firms that apply to BNDES repeatedly, and BNDES support has allowed granted firms to match the performance of similar unconstrained firms but not to outperform them.