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Does access to credit improve productivity? Evidence from Bulgaria1

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  • Roberta Gatti
  • Inessa Love

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.

Suggested Citation

  • Roberta Gatti & Inessa Love, 2008. "Does access to credit improve productivity? Evidence from Bulgaria1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 16(3), pages 445-465, July.
    • Handle: RePEc:bla:etrans:v:16:y:2008:i:3:p:445-465
    DOI: 10.1111/j.1468-0351.2008.00328.x
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    1. Bernstein, J.I. & Nadiri, M.I., 1993. "Production, Financial Structure and Productivity Growth in U.S. Manufacturing," Working Papers 93-10, C.V. Starr Center for Applied Economics, New York University.
    2. Marian Rizov, 2004. "Credit Constraints and Profitability : Evidence from a Transition Economy," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 40(4), pages 63-83, July.
    3. Tuuli Koivu, 2002. "Do efficient banking sectors accelerate economic growth in transition countries?," Macroeconomics 0212013, University Library of Munich, Germany.
    4. repec:zbw:bofitp:2002_014 is not listed on IDEAS
    5. Kaloyan Ganev, 2005. "Measuring Total Factor Productivity: Growth Accounting for Bulgaria," GE, Growth, Math methods 0504004, University Library of Munich, Germany, revised 21 Apr 2005.
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