The Effect of Partial Credit Guarantees on Firm Performance: the Case of the Colombian National Guarantee Fund * Irani Arráiz † Marcela Meléndez ‡ Rodolfo Stucchi § February 1, 2011 Abstract Using a firm-level panel dataset of the Colombian manufacturing sector from 1997 to 2007, we study the effect of a policy by which government-backed partial credit guarantees are automatically granted to firms lacking collateral in order to lift their credit constraints. The dataset put together for the purpose of this research combines data from DANE’s Annual Manufacturing Survey, DIAN’s export and import information, and firm-level records from the National Guarantee Fund (NGF), the government agency in charge of implementing this policy. Using propensity score matching and difference-in-differences in the common support, we find that firms that gain access to credit backed by the NGF guarantees are able to grow in terms of both output and employment, and increase the average wages they pay. We do not find, however, an impact on labor productivity or investment and the evidence with regards to the impact on total factor productivity is mixed. Our results suggest that firms use the new funds as a source of working capital to grow their businesses rather than as a source for investment in new fixed assets. Keywords: Partial Credit Guarantee, Access to Credit, Job Creation, Firm Growth, Productivity JEL Classification: H43, L25, O12, O54 * The views and interpretations in this document are those of the authors and should not be attributed to the Inter-American Development Bank, or to any individual acting on its behalf. We thank Andrés Salamanca and Juan Sebastián Galán for their work as research assistants. We are grateful to the National Guarantee Fund for access to their firm level database and to DANE, the Colombian Office of Statistics. Both agencies permitted access to microeconomic data protected by statistical reserve regulations under monitored conditions. † Office of Evaluation and Oversight (OVE), Inter-American Development Bank, Washington DC, USA. Email: iarraiz@iadb.org. ‡ ECON ESTUDIO, Bogotá, Colombia. Email: marcela.melendez@econestudio.com. This project was started when Marcela Meléndez was Associate Researcher at Fedesarrollo. § ECONFOCUS, Cordoba, Argentina, and Courant Research Centre “Poverty, Equity, and Growth in Developing Countries” Georg-August-Universität Göttingen, Germany. Email: rstucchi@econfocus.com.ar.