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Banking on the State: Does State Investment Bank Lending Increase Firm Investment?
Authored by David Frayman
6 December 2024
Banking on the State: Does State Investment Bank Lending Increase Firm Investment? | UCL Institute for Innovation and Public Purpose (IIPP) Working Paper Series: IIPP WP 2024-21
Author:
- David Frayman | Research Economist and PhD Graduate | UCL Institute for Innovation and Public Purpose
Abstract:
State-backed institutions disburse substantial volumes of loans to the private sector to finance investment. In some major economies, this accounts for over 20% of bank credit for investment. Despite this, the microeconomic effects of state investment bank lending have received limited empirical attention. This paper examines the impact of a major lending programme of in the European Union: the European Fund for Strategic Investments (EFSI). Using a unique dataset on loan recipients, it estimates the effect of lending on firm investment through a difference-in-differences design, matching recipients with controls expected to follow the same dynamics of investment demand. Receiving an EIB loan under EFSI is found to have caused substantial additional growth in fixed assets, averaging approximately 12 percentage points during the post-treatment period. This is the first causal evidence on the additionality of large state investment bank loans made directly to firms.
Reference:
This working paper can be referenced as follows: Frayman, D. (2024). Banking on the State: Does State Investment Bank Lending Increase Firm Investment?. UCL Institute for Innovation and Public Purpose, Working Paper Series (IIPP WP 2024-21). Available at: https://www.ucl.ac.uk/bartlett/public-purpose/wp2024-21