Do SME Credit Constraints Inhibit Job Creation? Spurring Employment in Developing Country Firms
This paper analyzes the relationship between access to finance and growth for small and medium enterprises (SMEs) in emerging markets. This study tests the hypothesis that in developing countries, small businesses hire more employees as the formal banking sector expands its reach; that is, bank access and employment are positively related among small businesses.A business-friendly investment environment is seen by many politicians and economists as the best way to help private enterprises create more jobs and expedite economic growth. While there are many potential constraints to individual business development and expansion - including lack of access to resources, burdensome regulations, and low institutional quality - the responses of emerging market firms to the World Bank's Enterprise Surveys indicate that lack of access to finance, such as credit lines, is one of the biggest constraints. Without easy, low-cost access to financing, existing firms are unable to effectively allocate their capital and are unlikely to invest in expansion projects.This paper applies a new measure of credit-constrained status to Enterprise Survey respondents. Previous literature has studied the effects of access to finance on enterprise growth and examined the effects of liquidity squeezes on firm behavior, but these studies have been based solely on firm perceptions of credit constraints. Using these new categories, this assessment determines that actual limits on external financing have a negative relationship with SME employment. Policies to help expand the banking sector to reach more small businesses will enable these firms to enhance their growth and job creation potential.
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Investing Into Their People-The Role of Credit Constraints on Firms' Human Capital Investment in Emerging Market Economies Hua, Yangyang (Georgetown University, 2014)In today's rapid changing market, a well-trained work force is the key to provide firms with a competitive edge through incorporation of productivity and creativity. However, in emerging market economies, the provision of ...
Tong, Shan (Georgetown University, 2013)Small and medium-sized enterprises (SMEs) have played a crucial role in China's economic development and its market-oriented economic reform. However, further growth of SMEs may be restricted by limited access to formal ...
Zhou, Ang (Georgetown University, 2015)A bulk of literature has demonstrated the importance of financial markets to countries' economic development. This thesis studies the influence of financial markets by exploring the effect of firms' access to finance on ...