The interaction between firms - whether though product competition, demand for inputs, or general equilibrium effects on labour and credit markets - drives the mechanisms of many of the canonical models of economic development. Yet most empirical work on credit and firms in developing countries has focused on own-firm production and its effect on entrepreneurs’ welfare. This evaluation expands the scope of a randomised controlled trial designed to estimate the direct impacts of credit on SMEs to study these interactions among firms, thereby capturing a new dimension of outcomes that is both theoretically important and highly policy relevant.
The team will measure spill overs of the existing intervention by conducting censuses of SMEs in the specific industrial sectors from which firms are applying for loans, and administering surveys with non-applicant firms competing against loan applicants, as well as by surveying firms linked to treatment and control firms through supply chains. Surveys of firms in the supply chains of the “treatment” and “control” enterprises will allow the researchers to measure vertical spill overs directly. In addition, they can exploit variation in the number of firms receiving credit in different industrial sectors and markets to measure horizontal spillovers on firms competing directly with treatment and control businesses, while also examining the heterogeneous impacts of credit on firms operating in markets that are more or less competitive.
Identifying competitor and supply chain markets and the horizontal and vertical interactions of sample firms constitutes a new approach to the study of firms in low- and middle-income countries and will allow the research team to make an original contribution to the literature on the impact of access to credit on SMEs.
