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CEP discussion paper

Relaxing Credit Constraints in Emerging Economies: The Impact of Public Loans on the Performance of Brazilian Manufacturers


n emerging economies credit constraints are often perceived as one of the most important market frictions hampering firm innovation and productivity growth in manufacturing. Huge amounts of public money are devoted to the removal of such constraints but their 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: (a) credit constraints facing Brazilian manufacturing firms are real, especially for firms that apply to BNDES repeatedly; (b) BNDES funding has been successful in relaxing those credit constraints; (c) BNDES support has allowed granted firms to match the performance of similar unconstrained firms, at least in the short run, but not to outperform them.


Filipe Lage de Sousa and Gianmarco I. P. Ottaviano

20 October 2014     Paper Number CEPDP1309

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This CEP discussion paper is published under the centre's Trade programme.