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Financial Constraints, Productivity, and Investment: Evidence from Lithuania

Author

Listed:
  • Karim Foda
  • Ms. Yu Shi
  • Maryam Vaziri

Abstract

This paper studies the relation between firms' access to finance, labor productivity and investment using Lithuanian firm-level data from 2000–2018. To do so, we construct a measure of financial constraints. We estimate that, given firm characteristics, removing these constraints can improve average productivity and investment of firms in Lithuania by 0.51 percent and 7.2 percent, respectively. Our results further suggest that policies targeting firm age and size together will be more effective in mitigating the impact of financial constraints as the relationship between firm age and size with financial constraints exhibits non-linearities.

Suggested Citation

  • Karim Foda & Ms. Yu Shi & Maryam Vaziri, 2022. "Financial Constraints, Productivity, and Investment: Evidence from Lithuania," IMF Working Papers 2022/249, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2022/249
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    Keywords

    Financial Constraints; Productivity; Investment; SMEs; Transition Economies; financing constraint; firm age; evidence from Lithuania; firm's age distribution; balance sheet information; Labor productivity; Aging; Financial statements; Global;
    All these keywords.

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