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  5. Do Credit Supply Shocks Affect Employment in Middle-Income Countries?

Do Credit Supply Shocks Affect Employment in Middle-Income Countries?

Abstract

This paper studies the effect of bank credit supply shocks on formal employment in Mexico using a proprietary data set containing information on all loans extended to firms by commercial banks during 2010–2015. We find large impacts on the formal employment of small and medium firms: a positive credit shock of one standard deviation increases yearly employment by 1.4 percentage points. The shares of uncollateralized credit, credit received by family firms, by younger firms, and by firms with no previous bank relationships also increase, suggesting that credit shocks may play a more prominent role for employment creation in credit-constrained settings.

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