The geography of Swedish SMEs’ investments: Financial constraints across the urban-rural hierarchy in a wealthy country with low regional disparities

Martin Andersson, Johan E. Eklund and Alexandra Tsvetkova

No 2020/06, OECD Regional Development Working Papers from OECD Publishing

Abstract: This paper advances our knowledge of the spatial determinants of productivity by empirically demonstrating one such mechanism – clear differences along the urban-rural continuum in the sensitivity of SMEs’ investments to own cash flow. Whereas the literature has established uneven availability of credit across space, the evidence on whether this translates into differences in actual business investments remains scarce. We answer this question in the context of Sweden – a highly digitalised country with low regional inequalities. We find that the world of financing is not yet flat for the majority of Swedish SMEs. Companies located in non-metro regions are most dependent on own cash flow in their investments. The results hold for all firms, firms of different sizes, firms operating in low-end services, unaffiliated firms and those belonging to domestic corporations. In contrast, investment – cash flow sensitivity of firms operating in high-tech services and those belonging to a multinational enterprise does not differ geographically. On average, regional investment-cash flow sensitivity is lower in bigger, denser and more educated local labour market regions; it is higher in regions with greater concentration of SMEs.

Keywords: access to finance; financial constraints; investment decisions; SMEs; urban-rural continuum (search for similar items in EconPapers)
JEL-codes: D25 O18 R10 R51 (search for similar items in EconPapers)
Date: 2020-10-19
New Economics Papers: this item is included in nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:oec:govaab:2020/06-en

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