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Do credit supply shocks affect employment in middle-income countries?

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Notes: Authors’ estimation of changes in log of formal employees in small firms in each labor market as the dependent variable and credit supply shocks in years t-2, t-1 and t as the independent variables. Regressions include local labor market and year fixed effects. The figure shows point estimates of the effect of credit supply shocks in different years on changes in employment. Observations are weighted by the number of workers in small firms in each labor market-year cell. The lines extending from the bars show the 95% confidence intervals with standard errors clustered at the local labor market level.

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[1] Bruhn and Love (2014) also study the impact of bank branch expansion on poverty but consider the case of an expansion led by private motives.
[2] Recent papers find moderate negative effects on employment during the 2009 crisis or abrupt negative financial shocks (Barbosa et al. 2019; Bentonilla et al. 2017; Berton et al. 2018; Boeri et al. 2013; Caggese et al. 2019; Chodorow-Reich 2014; Giannetti and Simonov 2013; Hochfellner et al. 2015; Huber 2018; Popov and Rocholl 2018). One exception is Berg (2018), who analyzes the effect of loan rejections on assets and employment of European firms during the years following the crisis. Berg finds no effect on employment in general but a moderate negative effect on small firms needing more cash for precautionary savings motives.
[3] The defense of shift-share measures of this kind as a source of arguably exogenous variation was first proposed by Bartik (1991) and exploited in a variety of settings.  

Source : blogs.worldbank.org

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