The geography of Swedish SMEs’ investments
Financial constraints across the urban-rural hierarchy in a wealthy country with low
regional disparities
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.
Published on October 19, 2020
In series:OECD Regional Development Working Papersview more titles