An Analysis of the Small Business Administration's Impact on Job Creation

This research investigates the potential endogenous relationship between small business financing provided through the Small Business Administration (SBA) and state-level economic growth, specifically job creation and retention, as causality may be bidirectional. The hypothesized causal relationship was assessed by including an instrumental variable, Certified Development Corporations (CDC), suggesting the influence of the CDC on employment can only occur through SBA approval. Annual governmental data for all US states, including D.C., for the years 2020 – 2022 were used in the analysis. The results fail to show a statistically significant relationship between the SBA loan volume and job creation, which may be attributed to the utilization of limited data, particularly from anomalous years due to COVID. The inclusion of data from an atypical period likely introduced confounding factors that influenced overall findings. However, 2022 results did reach statistical significance at the 0.10 level and the CDC variable consistently returned statistically significant results. These findings serve as an empirical foundation for further research and provide practical relevance and value to the existing body of knowledge used by policymakers for insight into the dynamics of SBA program initiatives.