It has been well documented that small firms often face serious credit constraints that limit their investment and production options (Beck and Demirguc-Kunt, 2006; Banerjee and Duflo, 2014). Policymakers in many countries have taken this stylized fact as implying that extending credit to small firms on easier terms could be an effective means of expanding employment and output. However, such an assessment is not necessarily warranted because the effects of easy credit on small firms depends on the ways and the circumstances under which such policies are implemented.
In this paper, we examine the direct effects of the Plan to Expand Quick-Returns Small Firms (PEQRSF), a size-dependent credit extension policy on small manufacturing firms (with 10-49 workers) in Iran. MORE…
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