Overview

An impact evaluation the USDA Rural Development Business and Industry Guarantees Program (BIGP). The presented proposal includes:

1. research needs statement or motivation (brief)
2. description of the program and its goals (brief)
3. objectives of the study/research design
4. evaluation methodology - outcomes measured, identification strategy and estimation techniques,
5. data elements or variables needed for quantitative impact analysis proposed

Research Statement

To ensure that the Business and Industry Guarantees Program (BIGP) from the USDA Rural Development provides for an expansion of total credit in the rural markets that it serves as opposed to a “crowding out” of private credit.

• This research proposal will quantify the increase in credit availability in areas receiving BIGP to ensure the program is creating a public service as opposed to crowding out private investment
• Methods will include propensity score matching for areas with similar characteristics that did not receive BIGP to serve as a control group
• Data for outcome analysis involves FDIC Call Reports and Summary of Deposits data to determine county level analysis

Program Description

• What does this program do?
  • This program bolsters the availability of private credit by guaranteeing loans for rural businesses.
• How may funds be used?
  • Business conversion, enlargement, repair, modernization, or development
  • Purchase and development of land, easements, rights-of-way, buildings, or facilities
  • Purchase of equipment, leasehold improvements, machinery, supplies, or inventory
  • Debt refinancing when refinancing improves cash flow and creates or saves jobs
  • Business and industrial acquisitions when the loan will create or save jobs

Program Description

• Eligible Uses of Funds
  • Purchase and development of land, buildings, and associated infrastructure for commercial or industrial properties – including expansion or modernization
  • Business acquisitions provided that jobs will be created or saved
  • Leasehold improvements when the lease contains no reverter/restrictive clauses that would impair the use or value of the property
  • Constructing or equipping facilities for lease to private businesses engaged in commercial or industrial operations
  • Purchase of machinery and equipment
  • Startup costs, working capital, inventory, and supplies in the form of a permanent working capital term loan

Program Description

• What is considered an eligible area?
  • Rural areas outside of a city or town with a population of fewer than 50,000 people.
  • The borrower’s headquarters may be based within a larger city as long as the project is located in an eligible rural area.
  • The lender may be located anywhere in the United States.
  • Projects may be funded in rural and urban areas under the Local and Regional Food System Initiative.

Objectives of Study

BIGP is a broad program which has a targeted group of rural areas (as opposed to urban or suburban) which may have a multitude of effects on local economies. To narrow the evaluation of the program to one specific area I propose to evaluate credit markets and thus would like to cover these particular areas:

Objectives of Study

• Identify the areas/businesses which apply for funds from BIGP
  • Within this group, determine what factors of the local economies were more conducive to acceptance versus denial
• Conditional on identifying recipient areas, determine pre-BIGP credit availability versus post-BIGP credit availability and performance on areas receiving funds
  • Propensity score matching techniques used to address causality concerns that areas more/less likely to experience credit growth are applying for BIGP
  • Credit availability measured as loan volume and deposits while performance is based on delinquencies
  • Particular focus on agricultural markets as 20 percent of rural counties are defined as farming-dependent per USDA-ERS

Data Sources

• Federal Deposit Insurance Corporation (FDIC) Call Reports
  • quarterly financial summaries of banks going back to 1992
  • headquarter level data
  • banks can and do operate across geographical boundaries
• FDIC Summary of Deposits
  • annual report as of June 30th but typically released in September
  • bank branch location and deposit data
• These two sources can be combined and downward imputation performed to have county/state level financial performance statistics

Additional Data

• Credit availability will depend on factors involving population, employment, and income:
  • Internal Revenue Service (IRS) Summary of Income statistics provide county level number of tax returns filed, number of exemptions filed, Adjusted Gross Income (AGI), Wages & Salaries, Dividends before exclusions, and Interest received for a taxable year
  • Quarterly Census of Employment and Wages (QCEW) provide county level data on number of establishments, employment levels, and wages which are also stratified by industry code for every quarter
  • Local Area Unemployment provides county level civilian labor force, employed, and unemployed data at the monthly level
  • Building Permits Survey provides county level data on construction authorized by building permits as a count of permits and value of construction at the monthly level

Evaluation Methodology

• First concern would be that the BIGP funds are disbursed to areas that fit in the criteria of the stated program goals
  • What data are available? All applications with their corresponding business address? Only successful applications? Only geographical summaries of applications submitted/disbursed?
  • Do data contain loan value? Business type? Purpose?
• Model the receipt of a BIGP loan:

\[Pr(Loan_i = 1) = f(Rural_i, Wages_i, Est_i, Loans_i, Delinq_i)\]

• Discrete choice methods for estimation (probit or logit) to determine rural focus is a driver of receipt of loan

Evaluation Methodology

• Second but of primary concern is that credit availability in an area increases
  • Again, what data are available?
• Model credit availability as measured by either total deposits or total loan volume in a geographical area:

\[Y_{i,t} = \alpha + \beta_1 {BGIP}_{i,t} + \beta_2 {Pop}_{i,t} + \beta_3 {Emp}_{i,t} + \beta_4 {Inc}_{i,t} + \epsilon_{i,t} \]

• Where primary concern is \(\beta_1\), expected to be positive and statistically significant if program has increased total credit availability
  • again, what are the data as this may be a dummy variable or a total measure of loan volume
• Data need to cover a sufficient time period prior to and after the disbursement of BGIP

Evaluation Methodology

• Clear concern with potential endogeneity of receipt of BGIP
• To combat this, propensity score matching methods to compare similar geographic areas where the only observable difference is receipt of BGIP loan
• Again, expectation for a successful program is that credit increased with receipt of BGIP