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The Role of Formal, Informal, and Family Credit in the Business Performance of Young Entrepreneurs in Benin

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  • Djossou Gbetoton Nadege Author-Name: Jacob Novignon Author-Name: Atchade Touwédé Bénédicte Author-Name: Abdelkrim Araar

Abstract

Young entrepreneurship is an important lever for economic growth and employment creation in developing countries. Credit uptake, however, continues to pose significant limitations to the sustainability of small-scale enterprises. We estimated the impact of credit uptake (formal, informal, and family) on young entrepreneurship performance in Benin, using 2014-2016 panel data from a World Bank survey on enterprise formalization. To address potential endogeneity and ensure robustness of results, we employed multiple models and estimation techniques (fixed-effects and Lewbel approach). Our results showed that, while formal credit was most important for larger firms, smaller firms benefited mainly from flexible (informal or family) credit. The impact of credit uptake was generally higher for women-owned firms. There were also variations in uptake according to firm owner’s age: the impact of formal credit was relatively higher for older firm owners while younger owners benefited more from flexible credit. The findings highlight the importance of Informal and family credit sources, especially for start-ups and small firms.

Suggested Citation

  • Djossou Gbetoton Nadege Author-Name: Jacob Novignon Author-Name: Atchade Touwédé Bénédicte Author-Name: Abdelkrim Araar, 2020. "The Role of Formal, Informal, and Family Credit in the Business Performance of Young Entrepreneurs in Benin," Working Papers PMMA 2020-16, PEP-PMMA.
    • Handle: RePEc:lvl:pmmacr:2020-16
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    Keywords

    Youth Entrepreneurship; Microcredit; Small-scale Enterprises; Benin;
    All these keywords.

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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