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

25 Pages Posted: 21 Sep 2020

See all articles by Zuzana Brixiova

Zuzana Brixiova

University of Cape Town - Faculty of Commerce - School of Economics

Thierry Kangoye

African Development Bank

Urbain Thierry Yogo

University of Yaounde II; The World Bank

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.

Keywords: entrepreneurship, financial inclusion, employment, propensity score matching

JEL Classification: L2, G2, D22, C1

Suggested Citation

Brixiova, Zuzana and Kangoye, Thierry and Yogo, Urbain Thierry, Access to Finance Among Small and Medium-Sized Enterprises and Job Creation in Africa. IZA Discussion Paper No. 13708, Available at SSRN: https://ssrn.com/abstract=3695409 or http://dx.doi.org/10.2139/ssrn.3695409

Zuzana Brixiova (Contact Author)

University of Cape Town - Faculty of Commerce - School of Economics ( email )

Rondebosch
Cape Town, 7700
South Africa

Thierry Kangoye

African Development Bank ( email )

Urbain Thierry Yogo

University of Yaounde II ( email )

1365 Yaounde
Yaounde, Center 00237
Cameroon

The World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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