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The Importance Of Financial Market Development On The Relationship Between Loan Guarantees For SMEs And Local Market Employment Rates

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Executive Summary

The authors empirically examine whether a major government intervention in the small-firm credit market yields significantly better results in markets that are less financially developed. The government intervention that they investigate is SBA-guaranteed lending. The literature on financing Small and Medium size Enterprises (SMEs) suggests that small firms may be exposed to a particular type of market failure associated with credit rationing. And SMEs in markets that are less financially developed will likely face a greater degree of this market failure.

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