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Credit Constraints & Productive Entrepreneurship in Africa

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  • Mina Baliamoune-Lutz

    ()

  • Zuzana Brixiov??

    ()

  • L??once Ndikumana

    ()

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

  • Mina Baliamoune-Lutz & Zuzana Brixiov?? & L??once Ndikumana, 2011. "Credit Constraints & Productive Entrepreneurship in Africa," William Davidson Institute Working Papers Series wp1025, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2011-1025
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    File URL: http://deepblue.lib.umich.edu/bitstream/2027.42/133041/1/wp1025.pdf
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    References listed on IDEAS

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    1. Pagano, Marco & Jappelli, Tullio, 1993. " Information Sharing in Credit Markets," Journal of Finance, American Finance Association, vol. 48(5), pages 1693-1718, December.
    2. Dercon, Stefan & Christiaensen, Luc, 2011. "Consumption risk, technology adoption and poverty traps: Evidence from Ethiopia," Journal of Development Economics, Elsevier, vol. 96(2), pages 159-173, November.
    3. Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007. "Private credit in 129 countries," Journal of Financial Economics, Elsevier, vol. 84(2), pages 299-329, May.
    4. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    5. Iyigun, Murat & Rodrik, Dani, 2004. "On the Efficacy of Reforms: Policy Tinkering, Institutional Change and Entrepreneurship," CEPR Discussion Papers 4399, C.E.P.R. Discussion Papers.
    6. Zuzana Brixiova, 2010. "Unlocking Productive Entrepreneurship in Africa’s Least Developed Countries," African Development Review, African Development Bank, vol. 22(3), pages 440-451.
    7. 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.
    8. 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.
    9. Tullio Jappelli & Marco Pagano, 2000. "Information Sharing in Credit Markets: A Survey," CSEF Working Papers 36, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    10. Brixiova, Zuzana & Kiyotaki, Nobuhiro, 1997. "Private sector development in transition economies," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 46(1), pages 241-279, June.
    11. 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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    Citations

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    Cited by:

    1. Brixiova, Zuzana & Kangoye, Thierry, 2016. "Gender Disparities in Employment and Earnings in Sub-Saharan Africa: Evidence from Swaziland," IZA Discussion Papers 10455, Institute for the Study of Labor (IZA).
    2. repec:wsi:jdexxx:v:19:y:2014:i:03:n:s1084946714500162 is not listed on IDEAS
    3. Brixiova, Zuzana & Kangoye, Thierry, 2016. "Start-Up Capital and Women's Entrepreneurship: Evidence from Swaziland," IZA Discussion Papers 10279, Institute for the Study of Labor (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 Brixiova & Thierry Kangoye, 2013. "Working Paper 175 - Youth Employment in Africa: New Evidence and Policies from Swaziland," Working Paper Series 472, African Development Bank.

    More about this item

    Keywords

    credit constraints; productive entrepreneurship; employment; policies;

    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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