Small and Medium Size Enterprises, Credit Supply Shocks, and Economic Recovery in Europe

Download or read book Small and Medium Size Enterprises, Credit Supply Shocks, and Economic Recovery in Europe written by Nir Klein and published by International Monetary Fund. This book was released on 2014-06-10 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: The limited access to bank credit in recent years has increased the pressure on small and medium size enterprises (SMEs), forcing them to scale down investment plans and production. This paper, which explores the macroeconomic implications of this channel, finds evidence that countries with high prevalence of SMEs tended to recover more slowly from the global financial crisis than their peers, implying that the interaction of the economic structure and access to bank financing plays a critical role in episodes of economic recovery. This conclusion is reinforced by a VAR estimation, which demonstrates that a negative credit supply shock applied to SMEs has an adverse effect on economic activity, and this impact is amplified in countries that have a high share of SMEs.