Access to Credit and Productivity of Enterprises in Bangladesh: Is there Causality?

This paper establishes a relationship between access to credit and the factor productivity of enterprises using the data collected through a nationally representative household survey conducted by InM in 2010. The survey data show that about 32 per cent of the households have at least one enterprise and some of the enterprises have received credit from different sources such as formal institutions, microfi nance institutions, and informal lenders, and hence they have some access to credit. Notwithstanding, it is found that many enterprises are credit-constrained, and so it is plausible that credit constraint or credit rationing affects the productivity of the enterprises. The access to credit is expected to be endogenously determined and in order to isolate the effect of access to credit on productivity, the endogeneity is controlled by applying instrumental variable and two stage least squares techniques. The results show that the access to credit (i) contributes to high average labour productivity and (ii) infl uences total factor productivity positively. The robustness of the fi ndings is tested by the effect of quantity rationing on the outcomes using the endogenous switching regression models as the alternate of the used models. The results are consistent and therefore, we may conclude that access to credit contributes to the productivity positively.