Access to Finance and Firm Growth: The Case of Ethiopian SMEs
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Date
2023-12-04
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A.A.U
Abstract
This study conducts an empirical investigation of the effects of access to finance on the growth of
Ethiopian SMEs. In order to achieve this, the study made use of an enterprise-level data set from the
World Bank’s Enterprise Surveys. The study specifically uses the World Bank Enterprise Surveys two
year panel data set for Ethiopia (i.e. for the year 2011 and 2015). The dataset consists of 1,486 Ethiopian
firms of which the largest share (907) is micro and small firms. The study used descriptive and
econometric analysis to process the data, obtain the relevant estimation results and fully discuss the
purposes under the study. Both subjective and objective measures of access to finance were used for the
sake of robustness. The subjective measure of access to finance is obtained from the ranking of access to
finance as no obstacle or severe obstacle to business operations. The objective measure of access to
finance measures whether firms are credit constrained or not. The study found that firm growth is
significantly constrained by access to finance. Firm age is also found to have a negative relationship with
firm growth while innovative firms have a better chance of growth than noon-innovative firms. Firm’s
access to finance is strongly determined by factors such as firm age, firm size, collateral, firm’s
innovative practices, and firm’s export orientation. However, whether these factors constrain access to
finance depends on firm size.