Demand Collapse or Credit Crunch to Firms? Evidence from the World Bank's Financial Crisis Survey in Eastern Europe
While there is a consensus that the 2008-2009 crisis was triggered by financial market disruptions in the United States, there is little agreement on whether the transmission of the crisis and the subsequent prolonged recession are due to credit fa...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2013/10/18372136/demand-collapse-or-credit-crunch-firms-evidence-world-banks-financial-crisis-survey-eastern-europe http://hdl.handle.net/10986/16865 |
| Summary: | While there is a consensus that the
2008-2009 crisis was triggered by financial market
disruptions in the United States, there is little agreement
on whether the transmission of the crisis and the subsequent
prolonged recession are due to credit factors or to a
collapse of demand for goods and services. This paper
assesses whether the primary effect of the global crisis on
Eastern European firms took the form of an adverse demand
shock or a credit crunch. Using a unique firm survey
conducted by the World Bank in six Eastern European
countries during the 2008-2009 financial crisis, the paper
shows that the drop in demand for firms' products and
services was overwhelmingly reported as the most damaging
adverse effect of the crisis. Other "usual
suspects," such as rising debt or reduced access to
credit, are reported as minor. The paper also finds that the
changes in firms' sales and installed capacity are
significantly and robustly correlated with the demand
sensitivity of the sector in which the firms operate.
However, they are not robustly correlated with various
proxies for firms' credit needs. |
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