M-RCBG Associate Working Paper No. 169

A Story of Human Capital: Why the Paycheck Protection Program Had Huge Geographic Disparities

Claire Yu Shi

Winner of the 2021 John Dunlop Undergraduate Thesis Prize



This thesis studies the Paycheck Protection Program (PPP)—a 660 billion dollar small business loan program enacted in April 2020 in response to the COVID-19 pandemic. The majority of small businesses could apply for (and receive) a forgivable loan, but I find that PPP uptake differs dramatically across space. To study this geographic variation, I first present a theoretical framework for PPP. One key prediction is that even though supply-side barriers limited PPP uptake in places that had weak banking relationships in the first round, business human capital should have been able to substitute for bank human capital during the second round. Second, I use a combination of county and firm-level data to demonstrate that in line with theory, places that received very little PPP overall had both low bank and low business human capital. Finally, factors such as COVID-19 impact or political attitudes were not key determinants in predicting PPP uptake. Consequently, even though PPP was designed for COVID-19, the distribution of PPP loans was fundamentally about human capital and institutions rather than pandemic impact.

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