BY: DAVID G. BLANCHFLOWER
Dartmouth College
National Bureau of Economic Research (NBER)
PHILLIP B. LEVINE
Wellesley College
DAVID J. ZIMMERMAN
Williams College
Paper ID: NBER Working Paper No. 6840
Date: December 1998
Contact: DAVID G. BLANCHFLOWER
Email: Mailto:blanchflower at dartmouth.edu
Postal: Dartmouth College
6106 Rockefeller Hall
Hanover, NH 03755 USA
Phone: (603)646-2536
Fax: (603)646-2122
Co-Auth: PHILLIP B. LEVINE
Email: Mailto:plevine at lucy.wellesley.edu
Postal: Wellesley College
106 Central Street
Wellesley, MA 02481-8203 USA
Co-Auth: DAVID J. ZIMMERMAN
Email: Mailto:David.J.Zimmerman at williams.edu
Postal: Williams College
Williamstown, MA 01267 USA
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ABSTRACT:
This paper uses data from the 1993 National Survey of Small
Business Finances to determine the extent to which
minority-owned small businesses face constraints in the credit
market beyond those faced by white-owned small businesses.
First, we present qualitative evidence indicating that black-
and white-owned firms report similar concerns about the factors
that may affect their businesses except that blacks are far more
likely to report problems with credit availability. Second, we
conduct an econometric analysis of loan denial probabilities by
race and find that black-owned small businesses are almost three
times more likely to have a loan application denied. Even after
controlling for the differences in credit-worthiness and other
factors that exist between black- and white-owned firms, blacks
are still about twice as likely to be denied credit. A series of
specification checks indicates that this gap is unlikely to be
largely attributed to omitted variable bias. Third, we conduct a
similar analysis regarding interest rates charged to approved
loans and find black-owned firms pay higher interest rates as
well. Finally, even these results are likely to understate
differences in credit access because many potential black-owned
firms are not in operation due to the lack of credit and those
in business may be too afraid to apply. These results indicate
that the racial disparity in credit availability is likely
caused by discrimination.
JEL Classification: G21, G28, J71