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2018 | OriginalPaper | Chapter

Does Access to Finance Improve Productivity? The Case of Italian Manufacturing

Authors : Adele Galasso, Francesco Gerotto, Giancarlo Infantino, Francesco Nucci, Ottavio Ricchi

Published in: Getting Globalization Right

Publisher: Springer International Publishing

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Abstract

Many contributions have analyzed the implications of underdeveloped financial markets for economic growth and efficiency of production, emphasizing their role as a source of misallocation and highlighting their negative impact on firm dynamics and innovation. The phenomenon is particularly severe in economies characterized by high reliance on debt financing, asymmetric information and imperfect capital markets. This paper reviews the literature on the link between finance and total factor productivity (TFP) and presents some microeconomic empirical evidence in support of a negative relationship between a firm’s ability to access external funding and its productivity. We exploit financial accounts data from ORBIS and AMADEUS and focus on a sample of Italian manufacturing firms during the period 2005–2015. Our findings show that financing constraints negatively affect firms’ productivity, with important implications at the aggregate level. We also document that the sensitivity of TFP to credit constraints increased significantly as a result of the Great Recession, possibly explaining the stalling post-crisis Italian recovery.

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Footnotes
1
Financing gap is defined as fixed investment plus the change in current assets net of cash minus cash flow (see Ferrando and Ruggieri 2015).
 
2
The authors apply Mundlak’s (1978) correction to account for time invariant firm-specific unobservables, which assumes that these individual-specific effects are equally correlated with all time-period regressors.
 
3
We are aware of the criticism attracted by Olley and Pakes (1996) for their choice of investment as a proxy variable for productivity (see Levinsohn and Petrin 2003; Ackerberg et al. 2015), which violates the monotonicity assumption imposed on the proxy, due to its lumpy nature. However, the alternative, i.e. intermediate inputs, is scarcely available in ORBIS/AMADEUS. We thus address the problem of kinks in the investment curve by focusing only on firms with non-zero investments in each period.
 
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Metadata
Title
Does Access to Finance Improve Productivity? The Case of Italian Manufacturing
Authors
Adele Galasso
Francesco Gerotto
Giancarlo Infantino
Francesco Nucci
Ottavio Ricchi
Copyright Year
2018
DOI
https://doi.org/10.1007/978-3-319-97692-1_9