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Do credit supply shocks affect employment in middle-income countries?
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Small and medium-size firms (SMEs) have been a subject of great interest to scholars and policy makers, as these enterprises play a critical role in the provision of employment around the globe (Ayyagari et al. 2011). However, the ability of SMEs to create jobs is hampered by their limited access to adequate finance, particularly in low- and middle-income economies (LMIEs) in which credit constraints are severe et al. 2003; Ayyagari et al. 2011; Stein et al. 2010). Having lower saving rates, weaker investor protection, underdeveloped credit bureaus, and less competitive banking environments, LMIEs have credit markets that are smaller and less efficient in dealing with informational asymmetries (La Porta et al. 1997; Djankov et al. 2007; Calomiris et al. 2017). Thus, SMEs in these countries face higher interest rates, larger credit constraints, and higher costs of switching across banks, implying that they a