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Credit constraints and productive entrepreneurship in Africa

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  • Mina Baliamoune-Lutz

    ()

  • Zuzana Brixiová

    ()

  • Léonce Ndikumana

    ()

Abstract

Limited access of entrepreneurs to credit constrains the creation and growth of private firms. In Africa, access to credit is particularly limited for small and medium enterprises (SMEs) due to unclear property rights and the lack of assets that can be used as collateral. This paper presents a model where firm creation and growth hinge on matching potential entrepreneurs with productive technologies, while firm growth depends on acquired capital. The shortage of collateral creates a binding credit constraint on borrowing by SMEs and hence private sector growth and employment, even though the banking sectors have ample liquidity, as is the case in many African countries. The model is tested using a sample of 20 African countries over the period 2005-09. The empirical results suggest that policies aimed at easing the binding credit constraints (e.g., the depth of credit information and the strength of legal rights pertaining to collateral and bankruptcy) would stimulate productive entrepreneurship and private sector employment in Africa.

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Bibliographic Info

Paper provided by ICER - International Centre for Economic Research in its series ICER Working Papers with number 23-2011.

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Length: 34 pages
Date of creation: Jan 2012
Date of revision:
Handle: RePEc:icr:wpicer:23-2011

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Keywords: credit constraints; productive entrepreneurship; employment; policies;

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References

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  1. Iyigun, Murat & Rodrik, Dani, 2004. "On the Efficacy of Reforms: Policy Tinkering, Institutional Change and Entrepreneurship," CEPR Discussion Papers 4399, C.E.P.R. Discussion Papers.
  2. Brixiova, Zuzana & Kiyotaki, Nobuhiro, 1997. "Private sector development in transition economies," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 46(1), pages 241-279, June.
  3. Dercon, Stefan & Christiaensen, Luc, 2011. "Consumption risk, technology adoption and poverty traps: Evidence from Ethiopia," Journal of Development Economics, Elsevier, vol. 96(2), pages 159-173, November.
  4. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
  5. Zuzana Brixiova, 2010. "Unlocking Productive Entrepreneurship in Africa’s Least Developed Countries," African Development Review, African Development Bank, vol. 22(3), pages 440-451.
  6. Mina Baliamoune-Lutz, 2007. "Entrepreneurship, Reforms, and Development: Empirical Evidence," ICER Working Papers 38-2007, ICER - International Centre for Economic Research.
  7. Haselmann, Rainer & Pistor, Katharina & Vig, Vikrant, 2006. "How Law Affects Lending," MPRA Paper 157, University Library of Munich, Germany.
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Cited by:
  1. Brixiova, Zuzana & Kangoye, Thierry, 2013. "Youth Employment in Africa: New Evidence and Policies from Swaziland," IZA Discussion Papers 7467, Institute for the Study of Labor (IZA).
  2. Zuzana Brixiova & Thierry Kangoye, 2013. "Working Paper 175 - Youth Employment in Africa: New Evidence and Policies from Swaziland," Working Paper Series 472, African Development Bank.

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