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Demand collapse or credit crunch to firms ? evidence from the world bank's financial crisis survey in Eastern Europe, Volume 1
Author:Nguyen, Ha Minh; Qian, Rong; Country:Europe;
Date Stored:2013/10/09Document Date:2013/10/01
Document Type:Policy Research Working PaperSubTopics:Economic Theory & Research; Markets and Market Access; Banks & Banking Reform; Access to Finance; Microfinance
Language:EnglishMajor Sector:Finance
Rel. Proj ID:1W-Capital Flows And Financial Integration -- -- P053639;Region:Europe and Central Asia
Report Number:WPS6651Sub Sectors:General finance sector
Collection Title:Policy Research working paper ; no. WPS 6651TF No/Name:TF010688-KCP II - Understanding Capital Flows to Developing Countries; BBRSB-BB RESEARCH SUPPORT BUDGET; TF098583-KCP II - On the use of domestic and international debt markets; TF015108-KCP II - Firm Financing from Capital Markets; TF092864-CAUSES AND CONSEQUENCES OF MACROECONOMIC VOLATILITY; TF092859-KCP - CAPITAL RAISING ACTIVITY IN DOMESTIC AND INTERNATIONAL MARKETS; TF094565-KCP II - GLOBALIZATION, RISK, AND CRISES; TF015022-KCP II - Institutional Investors; TF040145-WORLD:; TF040198-WORLD:
Volume No:1  

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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