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The effect of credit on growth and convergence of firm size in Kenyan manufacturing

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  • Janvier Desire Nkurunziza

Abstract

Few studies test for the effect of credit and convergence on firm growth in the context of a developing economy. The use of bank credit can affect firm growth in two opposite ways. The effect may be positive if credit allows a firm to address its liquidity constraint and increase investment and profitability. However, if macroeconomic shocks such as unexpected increases in interest rates make firm debts unsustainable, as experienced in Kenya in the 1990s, indebted firms may shrink or even collapse. Using microeconomic data on the Kenyan manufacturing sector, this study finds that conditional on survival, the firms that use credit grow faster than those not using it. There is also evidence that small firms grow faster than large ones, confirming the convergence hypothesis. These results are robust to alternative estimation procedures controlling for both endogeneity and selection bias.

Suggested Citation

  • Janvier Desire Nkurunziza, 2010. "The effect of credit on growth and convergence of firm size in Kenyan manufacturing," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 19(3), pages 465-494.
  • Handle: RePEc:taf:jitecd:v:19:y:2010:i:3:p:465-494
    DOI: 10.1080/09638190802617670
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    Cited by:

    1. Murmann Johann Peter & Korn Jenny & Worch Hagen, 2014. "How Fast Can Firms Grow?," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 234(2-3), pages 210-233, April.

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    Keywords

    Africa; manufacturing sector; growth;

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