The cost and availability of credit for firms in industrial districts

The marked differences that distinguish Italy�s productive and financial structure make location both geographical and within an industrial district an important factor that can influence firms� access to bank credit. The paper investigates how a firm�s location in an industrial district, along with its financial characteristics and the quality of its relations with the banking system, can influence the availability and cost of credit. The econometric analysis performed on a sample of 1,700 manufacturing firms for the period 1989-95, of which about half were located in an industrial district, shows that, size and performances being equal, district firms had a lower cost of credit and were less likely to be credit-rationed. This result is not ascribable to closer customer relations with the banking system than for �isolated� firms; it is likely instead that an economically rich and integrated environment and the type of production organization prevailing in such areas are conducive to credit intermediation. In addition, it is possible that the network of relations between district firms gives the firm greater bargaining power vis-�-vis the banking system, and that this is reflected in conditions of access to credit. Despite the positive overall results, the cost advantage has an adverse cyclical pattern: during phases of monetary tightening, the increase in interest rates on bank loans is proportionately higher for district firms. In addition, the initial easier access to credit appears to have vanished after the 1992-93 recession.