Access to Credit and Productivity: Firm-level Evidence from Latin America

Abstract

I use data from the World Bank’s Business Environment and Enterprise Performance Surveys from 2006 and 2009 to investigate the effects of access to credit and financial constraints on firm’s total factor productivity in Latin America. This study employs different econometric procedures and variables to examine this causality, attempting to mitigate endogeneity and simultaneity issues that are inherent to the estimations performed. My results indicate that greater access to credit and lesser financial constraints improve firms’ total factor productivity. More specifically, I find that the availability of a credit line or overdraft facility is a significant contributor to TFP growth of Latin American firms, representing an increase in productivity in the range of 13.2 to 59% of a standard deviation in TFP depending on the model and control variables used. These findings confirm my initial hypothesis that greater access to financing allows Latin American firms to engage in productivity enhancing-projects. At a country level, there is less significant evidence that my initial inference holds, but there are significant similarities between the country-specific and regional results to indicate that greater access to financing could improve productivity at a firm level.