March 11, 2018

Finance and Firm Productivity in Africa: Background Study from World Bank Enterprise Survey Data

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Access to finance has been considered to be one of the important factors in influencing firms’ real activities and in promoting aggregates. However, literature on the relationship between finance and firm-level productivity is almost non-existent for African countries. This paper fills this gap by using cross-sectional firm-level data to estimate the effect of access to finance on labour productivity, total factor productivity (TFP), and the stochastic frontier trans-log model. This study also estimates an instrumental variable model – two-stage least square estimator to address potential endogeneity bias between access to credit and firms’ productivity. The results obtained show that the lack of access to finance, especially overdraft facilities negatively affects the productivity of firms in Africa. Also, smaller firms and sole-proprietorships are mostly affected because they have less access to finance. This study suggests that the development of a balanced financial system should be of topmost priority to policy makers. This ensures that more finance is channelled towards those firms whose productivity depends heavily on the availability of finance irrespective of their characteristics. This would result in firms increasing their investments in productivity-enhancing activities, which would benefit long-term economic growth.



Nigeria Economic Update (Issue 41)

The naira continued its downward trajectory in the review week. Specifically, naira depreciated significantly at the parallel segment by 3.5 percent to a record low of N440/$ on September 23, 2016. Notably, this was driven by the worsening liquidity constraints at the interbank market which left the excess forex demand to be sourced at the parallel market, and thus exerted downward pressure on the naira. The naira is likely to further weaken given that most of the liquidity constraints are exogenously determined and thus forex supply will likely remain subdued by its demand.

Multidimensional Impact Evaluation:

Ending (extreme) poverty in all of its forms everywhere around the world continues to dominate the International Development Agenda (UN 2015). However, while poverty is declining in much of the developing world, data from the World Development Report (WDR) Conflict, Security, and Development reveal that fragile and conflict-affected states are lagging behind. The report points out that 'Poverty rates are 20 percentage points higher in countries affected by repeated cycles of violence over the last three decades. Indeed, with the worlds extreme poor over represented in fragile and conflict-affected ,some authors argue that violent conflict is development in reverse

Issues In Fiscal Policy Management Under The Economic Reforms

This paper was produced as part of a larger project which was jointly financed by the UKDepartment for International Development in Nigeria (through its Policy and Knowledge facility)and the Research Committee of the World Bank.