Work

Easing credit for small firms amidst expansionary policy shifts: Iran 2005–2013

Year: 2024

Type: article

Abstract: Credit facilitation policies for small firms are popular worldwide. Numerous studies indicate that outcomes tend to be positive but vary greatly. Endogeneity is often a challenge, and reasons behind variations are rarely explored. We assess the outcome of a major credit-easing program for small firms in Iran, addressing endogeneity and exploring reasons for the outcome. Using the program's threshold effect and a large panel dataset of Iran's manufacturing firms, we estimate a model of firm dynamics. We find that the program briefly raised production and employment growth among small firms, but the outcome was muted and entailed high costs. Unlike similar programs in other countries, which ease working-capital constraints, this program primarily increased investment. The weak outcome appears to be linked to the macroeconomic and policy environment in Iran, prompting firms to invest in real estate rather than productive equipment. Our findings highlight how local conditions shape credit-easing policy effectiveness.

Source: International Review of Economics & Finance

DOI: 10.1016/j.iref.2024.103828

Authors: Amirhossein Amini, Hadi Salehi Esfahani

Institutions: Howard University, University of Illinois Urbana-Champaign

Language: English

Topic: Banking stability, regulation, efficiency

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDGs: Decent work and economic growth, No poverty

Open Access status: hybrid

Estimated APC paid: $2,790