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Do credit guarantees for small and medium enterprises mitigate the business cycle? Evidence from Korea

Author

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  • Sun Ho Lee

    (IBK Economic Research Institute)

  • Eung-Soon Lim

    (Chungnam Techno Park)

  • Jinyoung Hwang

    (Hannam University)

Abstract

This study empirically examines the impact of credit guarantees for small and medium enterprises (SMEs) on the business cycle in Korea, using quarterly time series data over the period 2002–2012. Credit guarantees are denoted by the total amount of credit guarantees provided by three authorities in Korea, and the business cycle consists of two volatilities, that is, real GDP per capita and industrial product index. We used Toda and Yamamoto Granger causality test and autoregressive distributed lag (ARDL) bounds test approach to examine the existence of cointegration and to find out the short-run and long-run relationship between credit guarantees and business cycle. The ARDL bounds testing approach has an advantage that it can be used when I (0) and I (1) variables are mixed. Based on the ARDL bounds test approach, we find that credit guarantees for SMEs mitigate business cycle fluctuations in the short run, but find no significant effects in the long run.

Suggested Citation

  • Sun Ho Lee & Eung-Soon Lim & Jinyoung Hwang, 2017. "Do credit guarantees for small and medium enterprises mitigate the business cycle? Evidence from Korea," Empirical Economics, Springer, vol. 52(4), pages 1367-1378, June.
    • Handle: RePEc:spr:empeco:v:52:y:2017:i:4:d:10.1007_s00181-016-1106-4
    DOI: 10.1007/s00181-016-1106-4
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    2. Ondřej Dvouletý, 2017. "Effects of Soft Loans and Credit Guarantees on Performance of Supported Firms: Evidence from the Czech Public Programme START," Sustainability, MDPI, vol. 9(12), pages 1-17, December.

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    More about this item

    Keywords

    Credit guarantees; Business cycle; SMEs; ARDL bounds test;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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