Does access to credit improve productivity?

Roberta Gatti and Inessa Love

The Economics of Transition, 2008, vol. 16, issue 3, pages 445-465

Abstract: Although it is widely accepted that financial development is associated with higher growth, the evidence on the channels through which credit affects growth at the microeconomic level is scant. Using data from a cross-section of Bulgarian firms, we estimate the impact of access to credit, as proxied by indicators of whether firms have access to a credit line or overdraft facility, on productivity. To overcome potential omitted variable bias of Ordinary Least Squares (OLS) estimates, we use information on firms' past growth to instrument for access to credit. We find credit to be positively and strongly associated with TFP. These results are robust to a wide range of robustness checks. Copyright (c) 2008 The Authors. Journal compilation (c) 2008 The European Bank for Reconstruction and Development.

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