Reassessing the Impact of Financial Services on Urban Manufacturing Firms: An Impact Evaluation Method in Ethiopia

The stock of financial literature reveals emerging and conflicting stands on the effect of finance on the performance of the economy. The previous thoughts considered finance into account as an important driving force to growth through its role in intermediation, reduction of transaction costs and risk, and efficient uses of resources. Nevertheless, the newly emerging thoughts focus on the vanishing effect of finance due to its stiff competition over resources with the rest of the economy. The dialogues also reflected in the process of industrialization and promoting the manufacturing sector. Therefore, the general objective of this study is to reexamine the impact of financial services on the performance of manufacturing firms in Ethiopia with a special focus on firms in Addis Ababa. The study used propensity score matching method. The result shows that those who access finance has increased their operating margin profit by 2.6 on average in comparison with the non-treated groups. The treated groups have 0.42 greater net return on a net asset than non-treated groups on average. Therefore, the study suggests that financial institutions should increase their involvement to expand the accessibility of financial products to manufacturing firms that are the expected engines of sustainable growth and economic transformation.