nels. First, they may distort entry and technology adoption decisions and thus reduce the productivity of individual rms. Second, nancial frictions may generate dierences in the returns to capital across individual rms, thus generating eciency losses through misallocation (Banerjee and Duo (2005); Restuccia and Rogerson (2008); Hsieh and Klenow (2009)).

One potential source of nancial frictions are policy-induced interventions. During several decades the Brazilian government intervened heavily in credit markets. As will be discussed later, several credit reforms contributed to a substantial increase in private credit in the 2000s. However, after the 2008-2009 nancial crisis there was a signicant increase in the expansion of subsidized credit provided by public banks. The main source of long-term nancing to rms in Brazil is the Brazilian Development Bank (Banco Nacional de Desenvolvimento Econômico e Social, BNDES), a government-owned development bank.

Several papers do not nd positive eects of BNDES nancing on productivity, especially for large rms.<sup>15</sup> Even when there is evidence of a positive impact on productivity, they do not seem to be strong enough to be cost-eective when the sizable subsidy costs are considered. We will next briey discuss a few papers that illustrate the main issues.

Bonomo et al. (2015) use a large repository of loan contracts between banks and rms to investigate the eect of the expansion of BNDES credit expansion between 2004 and 2012. Their results show that larger, older and less risky rms beneted most from the government sponsored credit expansion. Additionally, the eect on investment appears to be insignicant for publicly traded rms. These results are consistent with the hypothesis that those established public rms in part substituted more expensive credit with subsidized loans.

Calice et al. (2018) study the impact of BNDES credit on resource misallocation in Brazil, using manufacturing rm-level data from 2003 until 2014. The paper rst estimates measures of resource misallocation based on Hsieh and Klenow (2009), documenting high variation in rms' capital and output distortions. It then estimates the eect of access to BNDES loans on distortions and their dispersions. The analysis nds some preliminary evidence that the use of BNDES credit is not associated with a more ecient allocation of resources. The lower cost of BNDES loans reduces the marginal cost of capital and induces rms to reallocate inputs from labor to capital. This eect is amplied for more nancially dependent rms. The authors point out that their results only reect the eectiveness of a particular credit line, FINAME, which nances the acquisition of machines and equipment in the domestic

> 15Bank (2017b) reviews the costs and benets of business support policies in Brazil, including subsidized credit policies by public banks. Bank (2017a) provides a detailed evaluation of the impact on productivity of subsidized credit programs and other business support policies in Brazil. Calice et al. (2018) provide a review of the literature on the eects of BNDES credit on several performance indicators and analyzes its eects on misallocation.

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