The Effect of Interest Rate Subsidies on Firm Performance and Investment Behavior during Economic Recession: Evidence from Vietnam

This paper aims to quantitatively evaluate the microeconomic consequences of the four percent interest rate subsidy program – the main component of the Vietnamese government’s economic stimulus package in 2009¬, which was intended assist recovery from the global economic and financial recession. Our analyses based on the Provincial Competitive Index (PCI) 2009 survey and accounting data of firms listed on Vietnam’s two stock exchanges show that firms receiving subsidized loans were more likely to add labor, expand investment, and possess optimistic business plans. On the other hand, we find evidence that not all business activity generated by the stimulus led to productivity increases - a non-trivial proportion of subsidized loans were not used to invest in production or expansion, but for speculative activities such as real estate and stock market trading.

Duke Scholars

Author Edmund Malesky Political Science