Misallocation and access to subsidized credit: Can the Brazilian Development Bank target credit-constrained firms?

Abstract

The Brazilian Development Bank (BNDES) strongly increased its subsidized credit disbursements from mid-2000’s to mid-2010’s. We take advantage of a BNDES firm size reclassification in 2010 as a plausibly exogenous shock in access to subsidized credit to study BNDES’ ability to target credit-constrained firms. Our first result is that BNDES-subsidized credit does impact firms’ capital wedges (distortions relative to optimal allocation). Our main result suggests that BNDES was unable to direct its increased credit flows toward firms that contribute the most to the economy, suggesting that it may not be able to target credit-constrained firms.