The IMF Working Papers series is designed to make IMF staff research available to a wide audience. With nearly 300 released each year, working papers cover a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
We study the impact of bank credit on firm productivity. We exploit a matched firm-bank
database covering all the credit relationships of Italian corporations, together with a natural
experiment, to measure idiosyncratic supply-side shocks to credit availability and to estimate
a production model augmented with financial frictions. We find that a contraction in credit
supply causes a reduction of firm TFP growth and also harms IT-adoption, innovation,
exporting, and adoption of superior management practices, while a credit expansion has
limited impact. Quantitatively, the credit contraction between 2007 and 2009 accounts for
about a quarter of observed the decline in TFP.