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Credit Constraints and Productive Entrepreneurship in Africa

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  • Baliamoune-Lutz, Mina

    () (University of North Florida)

  • Brixiova, Zuzana

    () (University of Economics Prague)

  • Ndikumana, Leonce

    () (University of Massachusetts Amherst)

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.

Suggested Citation

  • Baliamoune-Lutz, Mina & Brixiova, Zuzana & Ndikumana, Leonce, 2011. "Credit Constraints and Productive Entrepreneurship in Africa," IZA Discussion Papers 6193, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp6193
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    7. Murat Iyigun & Dani Rodrik, 2004. "On the Efficacy of Reforms: Policy Tinkering, Institutional Change, and Entrepreneurship," NBER Working Papers 10455, National Bureau of Economic Research, Inc.
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    9. Rainer Haselmann & Katharina Pistor & Vikrant Vig, 2010. "How Law Affects Lending," Review of Financial Studies, Society for Financial Studies, vol. 23(2), pages 549-580, February.
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    11. Jappelli, Tullio & Pagano, Marco, 2002. "Information sharing, lending and defaults: Cross-country evidence," Journal of Banking & Finance, Elsevier, vol. 26(10), pages 2017-2045, October.
    12. Mina Baliamoune-Lutz, 2007. "Entrepreneurship, Reforms, and Development: Empirical Evidence," ICER Working Papers 38-2007, ICER - International Centre for Economic Research.
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    Cited by:

    1. David N Margolis, 2014. "By Choice and by Necessity: Entrepreneurship and Self-Employment in the Developing World," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 26(4), pages 419-436, September.
    2. Zuzana Brixiova & Thierry Kangoye, 2014. "Youth Unemployment in Africa: New Evidence and Policies from Swaziland," AIEL Series in Labour Economics, in: Dario Sciulli & Miguel Ángel Malo (ed.), Disadvantaged Workers, edition 1, chapter 9, pages 181-202, AIEL - Associazione Italiana Economisti del Lavoro.
    3. Brixiova, Zuzana & Kangoye, Thierry, 2016. "Start-Up Capital and Women's Entrepreneurship: Evidence from Swaziland," IZA Discussion Papers 10279, Institute of Labor Economics (IZA).
    4. Sanjay Banerji & Rajesh S. N. Raj & Kunal Sen, 2016. "Monitoring Costs, Credit Constraints and Entrepreneurship," Manchester School, University of Manchester, vol. 84(5), pages 573-599, September.
    5. Zuzana Brixiová & Thierry Kangoye & Fiona Tregenna, 2020. "Enterprising Women in Southern Africa: When Does Land Ownership Matter?," Journal of Family and Economic Issues, Springer, vol. 41(1), pages 37-51, March.
    6. Brixiová, Zuzana & Kangoye, Thierry & Yogo, Thierry Urbain, 2020. "Access to finance among small and medium-sized enterprises and job creation in Africa," Structural Change and Economic Dynamics, Elsevier, vol. 55(C), pages 177-189.
    7. Zuzana Brixiová & Thierry Kangoye, 2019. "Networks, start-up capital and women's entrepreneurial performance in Africa: Evidence from Eswatini," SALDRU Working Papers 257, Southern Africa Labour and Development Research Unit, University of Cape Town.
    8. Brixiova, Zuzana & Kangoye, Thierry, 2016. "Gender Disparities in Employment and Earnings in Sub-Saharan Africa: Evidence from Swaziland," IZA Discussion Papers 10455, Institute of Labor Economics (IZA).
    9. Mina Baliamoune-Lutz & Pierre Garello, 2014. "Tax structure and entrepreneurship," Small Business Economics, Springer, vol. 42(1), pages 165-190, January.
    10. Michael Sheriff & Moreno Muffatto, 2014. "Reviewing Existing Policies For Unleashing And Fostering Entrepreneurship In Selected African Countries," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 19(03), pages 1-36.
    11. Orkhan Nadirov & Bruce Dehning, 2020. "Tax Progressivity and Entrepreneurial Dynamics," Sustainability, MDPI, Open Access Journal, vol. 12(9), pages 1-21, April.
    12. 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.
    13. Roxana Gutierrez-Romero & Luciana Méndez Errico, 2015. "The Long-Term Impact of Inequality on Entrepreneurship and Job Creation," Working Papers wpdea1501, Department of Applied Economics at Universitat Autonoma of Barcelona.

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    More about this item

    Keywords

    credit constraints; productive entrepreneurship; employment; policies;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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