Financial Constraints, Productivity, and Investment: Evidence from Lithuania

Karim Foda, Yu Shi and Maryam Vaziri

No 2022/249, IMF Working Papers from International Monetary Fund

Abstract: This paper studies the relation between firms' access to finance, labor productivity and investment using Lithuanian firm-level data from 2000–2018. To do so, we construct a measure of financial constraints. We estimate that, given firm characteristics, removing these constraints can improve average productivity and investment of firms in Lithuania by 0.51 percent and 7.2 percent, respectively. Our results further suggest that policies targeting firm age and size together will be more effective in mitigating the impact of financial constraints as the relationship between firm age and size with financial constraints exhibits non-linearities.

Keywords: Financial Constraints; Productivity; Investment; SMEs; Transition Economies; financing constraint; firm age; evidence from Lithuania; firm's age distribution; balance sheet information; Labor productivity; Aging; Financial statements; Global (search for similar items in EconPapers)
Pages: 26
Date: 2022-12-09
New Economics Papers: this item is included in nep-cfn, nep-eff, nep-fdg, nep-sbm and nep-tra
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