Credit constraints, labor productivity and the role of regional institutions: evidence for manufacturing firms in Europe

Andrés Rodríguez-Pose, Roberto Ganau, Kristina Maslauskaite and Monica Brezzi

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper examines the relationship between credit constraints - proxied by the investment-to-cash flow sensitivity – and firm-level economic performance - defined in terms of labor productivity – during the period 2009-2016, using a sample of 22,380 manufacturing firms from 11 European countries. It also assesses how regional institutional quality affects productivity at the level of the firm both directly and indirectly. The empirical results highlight that credit rationing is rife and represents a serious barrier for improvements in firm-level productivity and that this effect is far greater for micro and small than for larger firms. Moreover, high-quality regional institutions foster productivity and help mitigate the negative credit constraints-labor productivity relationship that limits the economic performance of European firms. Dealing with the European productivity conundrum thus requires greater attention to existing credit constraints for micro and small firms, although in many areas of Europe access to credit will become more effective if institutional quality is improved.

Keywords: credit constraints; labor productivity; manufacturing firms; regional institutions; cross-country analysis; Europe (search for similar items in EconPapers)
JEL-codes: C23 D24 G32 H41 R12 (search for similar items in EconPapers)
Pages: 72 pages
Date: 2020-11
New Economics Papers: this item is included in nep-cfn, nep-eff, nep-fdg, nep-geo, nep-sbm, nep-tid and nep-ure
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Citations: View citations in EconPapers (2)

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http://eprints.lse.ac.uk/107500/ Open access version. (application/pdf)

Related works:
Journal Article: Credit constraints, labor productivity, and the role of regional institutions: Evidence from manufacturing firms in Europe (2021)
Working Paper: Credit Constraints, Labor Productivity and the Role of Regional Institutions: Evidence from Manufacturing Firms in Europe (2020)
Working Paper: Credit Constraints, Labor Productivity and the Role of Regional Institutions: Evidence from Manufacturing Firms in Europe (2020)
Working Paper: Credit constraints, labor productivity and the role of regional institutions: evidence from manufacturing firms in Europe (2020)
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