Do credit supply shocks affect employment in middle-income countries?

Arbeitspapier

This paper studies the extent to which increases in bank credit supply available for small and medium firms can foster formal employment in Mexico. We use a detailed dataset containing loan-level information for all loans extended by commercial banks to private firms in Mexico during the 2010-2016 period, when the economy was relatively stable. To obtain exogenous variation in credit supply, we exploit differences in the regional presence of Mexican banks across local labor markets by combining pre-existing market shares with national-level changes in banks' credit supply, after accounting for local credit demand shocks. Then, we use employment registry data to compare changes in the number of formal workers registered by small and medium firms in local labor markets differently exposed to these shocks. We find that credit supply shocks have a large impact on formal employment: a positive credit shock of one standard deviation increases yearly employment growth by 0.45 percentage points (13 percent of the mean). Our results differ from the null to small effects identified by previous literature for developed countries, suggesting that credit supply shocks play a more prominent role for employment creation (and destruction) in low and middle-income countries.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Documento de Trabajo ; No. 277

Classification and Topics

• Classification: Wirtschaft ; Firm Behavior: Empirical Analysis ; General Equilibrium and Disequilibrium: Financial Markets ; Financial Crises ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Labor Economics: General ; Labor Demand
• Subject: Credit supply shocks ; local labor market ; formal employment

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gutiérrez, Emilio Fernandez ; Jaume, David ; Tobal, Martín
• Event: Veröffentlichung
• (who): Universidad Nacional de La Plata, Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS)
• (where): La Plata
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/250366
• Last update: 10.03.2025, 11:41 AM CET