Financial Access and Firms’ Productivity in Sub-Saharan Africa

Abstract

This study aimed at finding the effect of financial access and other potential determinants on productivity of firms in Sub-Saharan Africa. Data was sourced from the World Bank‟s Enterprise Survey for 2,830 manufacturing firms collected over the period 2003 – 2014. With the aid of the Semi-parametric approach by Levinsohn and Petrin which uses intermediate inputs to proxy for unobservable productivity shocks, total factor productivity was estimated and regressed on several variables including financial access proxied by line of credit/loan and access to an overdraft facility. The result indicates that access to cost-effective line of credit/loan or an overdraft facility has positive and statistically significant effect on firms‟ productivity. Using firms‟ age, size and location as control level variables, the study found foreign ownership, exports and internationally-recognised quality certification to be positively related to productivity whilst frequent power outages and female managers to adversely affect productivity. These findings are consistent with robustness checks using alternative approaches. The study therefore suggests that credit constraints should be significantly relaxed, starting with governments in Africa lessening their policy rates. Also firms should acquire internationally recognised quality certification and take part in exporting of their products as well as allowing foreign partnerships on their shareholding structure.