Credit Constraints and Productive Entrepreneurship in Africa

30 Pages Posted: 24 Dec 2011

See all articles by Mina Baliamoune-Lutz

Mina Baliamoune-Lutz

University of North Florida ; Economic Research Forum; Policy Center for the New South

Zuzana Brixiova

International Monetary Fund (IMF) - European Department; African Development Bank

Leonce Ndikumana

University of Massachusetts at Amherst; University of Cape Town, School of Economics; University of Stellenbosch, Department of Economics

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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.

Keywords: credit constraints, productive entrepreneurship, employment, policies

JEL Classification: G21, L26, D24

Suggested Citation

Baliamoune-Lutz, Mina and Brixiova, Zuzana and Ndikumana, Leonce, Credit Constraints and Productive Entrepreneurship in Africa. IZA Discussion Paper No. 6193, Available at SSRN: https://ssrn.com/abstract=1976524 or http://dx.doi.org/10.2139/ssrn.1976524

Mina Baliamoune-Lutz (Contact Author)

University of North Florida ( email )

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Policy Center for the New South ( email )

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Zuzana Brixiova

International Monetary Fund (IMF) - European Department ( email )

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Leonce Ndikumana

University of Massachusetts at Amherst ( email )

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University of Cape Town, School of Economics ( email )

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University of Stellenbosch, Department of Economics ( email )

South Africa

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