Source of Finance and Small Enterprise Productivity Growth in Ghana

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Date

2012

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Emerald

Abstract

Purpose -The purpose of this study is to investigate the effects of nature and a range of institutional sources of start-up finance on Micro and Small enterprises’ (MSEs) productivity growth in Ghana. Design/methodology/approach - Using a unique non-farm household enterprise survey data from Ghana, we estimated TFP or Solow residual as a proxy for MSEs’ productivity growth as well as other for robustness checks. Findings - After controlling for firm-level characteristics such as size, age, ownership type etc, the study finds that debt finance was positively associated with productivity growth, while financing from donation or charity did not. Second, we found significant positive associations between a more formal financing source such as commercial bank loans and NBFIs financing sources and MSE’s productivity growth. This finding was robustly confirmed by manager’s growth perception. Further, compared to internal finance, external financing sources was found to be positively associated with productivity growth - indicating complementarities among all external financing sources. Research limitations/implications - Further research will be needed to validate these results, particularly using enterprise on-going finance or working capital rather than start-up capital. Practical implications - The study sorts to imply that too much of free money or grant finance has the tendency to undermine the motivation and incentive for MSEs to be innovative in bringing about a higher productivity growth. Improving access to external finance at a reasonable cost, will afford microentrepreneurs to make the needed investment in innovations. Originality/value – The study contributes to the finance literature by studying the impact of nature and institutional financing sources on MSEs’ productivity growth in Africa context.

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Micro, Small Enterprises, Source of Finance, Productivity Growth

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