Subsidized wages, small businesses, and exports: Evidence from the paycheck protection program

Abstract The easily forgivable federal loans offered through the Paycheck Protection Program (PPP) to offset the impact of the COVID‐19 recession provide a unique opportunity to investigate whether subsidizing the costs of labor for small firms can increase exports in the whole industry. The main eligibility rule to receive these loans, i.e., having less than 500 employees in 2019 and the size of loans, were dependent on the size of the firm prior to the COVID‐19 pandemic. This implies a plausibly exogenous variation in the size of the PPP loans across states and industries. We exploit this exogenous variation in the size of PPP loans and estimate a difference‐in‐differences model that allows for heterogenous treatment effect to measure the instantaneous and dynamic effects of these loans. We find that a 10% increase in the size of PPP loans in 2020 and 2021 leads to 0.27% and 0.37% increase in exports in a given state‐industry. The 2020 loans appear to have no lasting effect beyond the quarter they are awarded. The 2021 loans, however, displayed a more dynamic effect and a 10% increase in the size of these loans in one quarter would lead to 0.28% increase in the value of exports three quarters later. In addition to estimating the average effect of these loans, we show that the effects of the loans are significantly heterogeneous across industries and the per‐dollar effect of these loans decreases as the loan size (per employee) increases.