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Credit constraints and GDP growth: Evidence from a natural experiment

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  • Kumar, Anil
  • Liang, Che-Yuan

Abstract

Before 1998, Texas was the only state that greatly restricted home equity loans and cash-out refinancing for non-housing consumption. Such borrowing was authorized in Texas, for the first time, through a constitutional amendment in 1998. Using state-level panel data and recently developed synthetic control methods based on machine learning we find that the Texas’ constitutional amendments relaxing credit constraints had an insignificant impact on GDP growth. Our findings have important policy implications for the stimulative effect of easier home equity access on GDP growth.

Suggested Citation

  • Kumar, Anil & Liang, Che-Yuan, 2019. "Credit constraints and GDP growth: Evidence from a natural experiment," Economics Letters, Elsevier, vol. 181(C), pages 190-194.
    • Handle: RePEc:eee:ecolet:v:181:y:2019:i:c:p:190-194
    DOI: 10.1016/j.econlet.2019.05.037
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    References listed on IDEAS

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    1. Timothy G. Conley & Christopher R. Taber, 2011. "Inference with "Difference in Differences" with a Small Number of Policy Changes," The Review of Economics and Statistics, MIT Press, vol. 93(1), pages 113-125, February.
    2. Dirk Bezemer & Maria Grydaki & Lu Zhang, 2016. "More Mortgages, Lower Growth?," Economic Inquiry, Western Economic Association International, vol. 54(1), pages 652-674, January.
    3. Beck, Roland & Georgiadis, Georgios & Straub, Roland, 2014. "The finance and growth nexus revisited," Economics Letters, Elsevier, vol. 124(3), pages 382-385.
    4. Nikolay Doudchenko & Guido W. Imbens, 2016. "Balancing, Regression, Difference-In-Differences and Synthetic Control Methods: A Synthesis," NBER Working Papers 22791, National Bureau of Economic Research, Inc.
    5. Chadi S. Abdallah & William D. Lastrapes, 2012. "Home Equity Lending and Retail Spending: Evidence from a Natural Experiment in Texas," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(4), pages 94-125, October.
    6. Tullio Jappelli & Marco Pagano, 1994. "Saving, Growth, and Liquidity Constraints," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(1), pages 83-109.
    7. Abadie, Alberto & Diamond, Alexis & Hainmueller, Jens, 2010. "Synthetic Control Methods for Comparative Case Studies: Estimating the Effect of California’s Tobacco Control Program," Journal of the American Statistical Association, American Statistical Association, vol. 105(490), pages 493-505.
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    Cited by:

    1. William D. Lastrapes & Ian Schmutte & Thor Watson, 2022. "Home equity lending, credit constraints and small business in the US," Economic Inquiry, Western Economic Association International, vol. 60(1), pages 43-63, January.

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    More about this item

    Keywords

    Credit constraints and GDP growth; Synthetic control with machine learning;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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