Indirect Effects of Access to Finance

Working Paper
Published on 1 March 2022
Jing Cai , Adam Szeidl


We created experimental variation across local markets in China in the share of firms having access to a new loan product, to measure the direct and indirect effects of access to finance. We find that:(1) Access to finance had a large positive direct effect on the performance of treated firms. (2) Access to finance had a similar-sized negative indirect effect on the performance of firms with treated competitors. The two effects offset in the aggregate and imply no detectable gains in producer surplus. (3) Access to finance had a positive direct effect on business practices, service quality, and consumer satisfaction, and a negative effect on price. None of these effects were offset by indirect effects, suggesting net gains in consumer surplus. (4) Two additional indirect effects were active: diffusion of borrowing to firms with treated peers, and diffusion of demand to firms with treated neighbors. (5) Combining several effects in a model-based evaluation, we estimate that the loan had a private return of 74%, most of which was offset by losses to competitors, and a social return of 60%, most of which was driven by gains to consumers.


Jing Cai

University of Maryland

Adam Szeidl

Central European University