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Access to Finance among Small and Medium-Sized Enterprises and Job Creation in Africa

Author

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  • Brixiová, Zuzana
  • Kangoye
  • Thierry
  • Yogo, Thierry Urbain

Abstract

In the past decade inclusive growth, that is job-rich growth, has topped the policy agenda in developing countries. This paper investigates how the access to finance affects employment in small and medium-sized enterprises (SMEs) in Sub-Saharan Africa. It first presents a model where firm creation requires entrepreneurial search and paying the start-up costs, while the firm’s size in terms of employment depends on the access to credit. Under the financial market imperfections, access to credit can be a binding constraint on firm entry and employment even when the banks have sufficient liquidity. Using an impact evaluation-based approach on firm-level data from 42 African countries, we show that SMEs with access to formal financing create more jobs than firms without access, with employment in firms having access to more affordable and larger loans growing the fastest. The impact of access to finance is stronger for firms in manufacturing than in services, pointing to sectoral targeting of finance as a possible policy supporting industrialization.

Suggested Citation

  • Brixiová, Zuzana & Kangoye & Thierry & Yogo, Thierry Urbain, 2020. "Access to Finance among Small and Medium-Sized Enterprises and Job Creation in Africa," GLO Discussion Paper Series 665, Global Labor Organization (GLO).
  • Handle: RePEc:zbw:glodps:665
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    References listed on IDEAS

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    2. Lee, Chien-Chiang & Wang, Chih-Wei & Ho, Shan-Ju, 2022. "Financial aid and financial inclusion: Does risk uncertainty matter?," Pacific-Basin Finance Journal, Elsevier, vol. 71(C).
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    4. Ebrahim Endris & Andualem Kassegn, 2022. "The role of micro, small and medium enterprises (MSMEs) to the sustainable development of sub-Saharan Africa and its challenges: a systematic review of evidence from Ethiopia," Journal of Innovation and Entrepreneurship, Springer, vol. 11(1), pages 1-18, December.

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    More about this item

    Keywords

    entrepreneurship; financial inclusion; employment; propensity score matching;
    All these keywords.

    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • G2 - Financial Economics - - Financial Institutions and Services
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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