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Financial constraints and investment: assessing the impact of a World Bank credit program on small and medium enterprises in Sri Lanka

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  • Varouj A. Aivazian
  • Eric Santor

Abstract

. This paper examines the investment behaviour of a sample of small, credit‐constrained firms in Sri Lanka. Using a unique panel data set, we analyze and compare the activities of two groups of small firms distinguished by their differential access to financing; one group consists of firms with subsidized loans from the World Bank, while the other group consists of firms without such subsidies. The paper shows that the program led to higher levels of investment for financially constrained firms. However, the evidence is inconclusive on whether the program improved economic efficiency. Ce mémoire examine le comportement d'investissement d'un échantillon de petites firmes au Sri Lanka. Utilisant un ensemble de données de panel unique, on analyse et compare les activités de deux groupes de petites firmes qui se distinguent par leur accès différentiel au financement; le premier groupe contient des entreprises qui reçoivent des prêts subventionnés par la Banque mondiale, alors que le second contient des entreprises qui ne sont pas subventionnées. On montre que le programme de subventions entraîne des niveaux plus élevés d'investissement pour les firmes financièrement contraintes. Les résultats ne sont cependant pas concluants à savoir si le programme a amélioré l'efficacitééconomique.

Suggested Citation

  • Varouj A. Aivazian & Eric Santor, 2008. "Financial constraints and investment: assessing the impact of a World Bank credit program on small and medium enterprises in Sri Lanka," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 41(2), pages 475-500, May.
    • Handle: RePEc:wly:canjec:v:41:y:2008:i:2:p:475-500
    DOI: 10.1111/j.1540-5982.2008.00471.x
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    2. Tulio Cravo & Caio Piza, 2016. "The Impact of Business Support Services for Small and Medium Enterprises on Firm Performance in Low -and Middle- Income Countries: A Meta-Analysis," IDB Publications (Working Papers) 94938, Inter-American Development Bank.
    3. Butler, Ines & Giuliodori, David & Guiñazu, Sebastian & Martinez Correa, Julian & Rodríguez, Alejandro, 2017. "Programas de Financiamiento Productivo a pymes, acceso al crédito y desempeño de las firmas: Evidencia de Argentina [Productive programs for SMEs, access to credit and performance of firms: evidenc," MPRA Paper 83524, University Library of Munich, Germany.
    4. Lamessa T. Abdisa & Alemu L. Hawitibo, 2021. "Firm performance under financial constraints: evidence from sub-Saharan African countries," Journal of Innovation and Entrepreneurship, Springer, vol. 10(1), pages 1-17, December.
    5. Kersten, Renate & Harms, Job & Liket, Kellie & Maas, Karen, 2017. "Small Firms, large Impact? A systematic review of the SME Finance Literature," World Development, Elsevier, vol. 97(C), pages 330-348.
    6. Alessandro Maffioli & Joao A. Negri & Cesar M. Rodriguez & Gonzalo Vazquez-Bare, 2017. "Themed Issue: Cash Transfers and Microfinance," Development Policy Review, Overseas Development Institute, vol. 35(5), pages 675-702, September.
    7. Mariasole Bannò & Marika Vezzoli & Maurizio Carpita, 2011. "Disentangling the Innovation - Internalization Process Through a Structural Equation Model," ERSA conference papers ersa11p195, European Regional Science Association.
    8. Rijkers, Bob & Ruggeri Laderchi, Caterina & Teal, Francis, 2010. "Who Benefits from Promoting Small Enterprises? Some Empirical Evidence from Ethiopia," World Development, Elsevier, vol. 38(4), pages 523-540, April.
    9. Amarjit Gill & Craig Wilson, 2021. "Bank connections and small business performance: Evidence from Canadian survey data," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5110-5134, October.

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    More about this item

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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