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The Role of Formal, Informal, and Family Credit in the Business Performance of Young Entrepreneurs in Benin

Djossou Gbetoton Nadege Author-Name: Jacob Novignon Author-Name: Atchade Touwédé Bénédicte Author-Name: Abdelkrim Araar

Working Papers PMMA from PEP-PMMA

Abstract: Young entrepreneurship is an important lever for economic growth and employment creation in developing countries. Credit uptake, however, continues to pose significant limitations to the sustainability of small-scale enterprises. We estimated the impact of credit uptake (formal, informal, and family) on young entrepreneurship performance in Benin, using 2014-2016 panel data from a World Bank survey on enterprise formalization. To address potential endogeneity and ensure robustness of results, we employed multiple models and estimation techniques (fixed-effects and Lewbel approach). Our results showed that, while formal credit was most important for larger firms, smaller firms benefited mainly from flexible (informal or family) credit. The impact of credit uptake was generally higher for women-owned firms. There were also variations in uptake according to firm owner’s age: the impact of formal credit was relatively higher for older firm owners while younger owners benefited more from flexible credit. The findings highlight the importance of Informal and family credit sources, especially for start-ups and small firms.

Keywords: Youth Entrepreneurship; Microcredit; Small-scale Enterprises; Benin (search for similar items in EconPapers)
JEL-codes: D20 D25 O12 O17 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-cse, nep-ent, nep-iue, nep-mfd and nep-sbm
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Persistent link: https://EconPapers.repec.org/RePEc:lvl:pmmacr:2020-16

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