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Financial constraints and productivity growth: firm-level evidence from a large emerging economy

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  • Yusuf Kenan Bagir
  • Unal Seven

Abstract

We study whether the linkage between financing and productivity growth strengthens as the severity of financial constraints increases by using firm-level administrative data from a large emerging economy. We also explore whether upstream firms’ financial constraints play a role in the linkage between finance and productivity. Using a combination of administrative databases of tax registry and firm-to-firm trade data of 896,317 Turkish firms from 2007 to 2018, employing various robustness tests and controlling for reverse causality, we find strong evidence that firms facing higher financial constraints exhibit a higher sensitivity of total factor productivity (TFP) growth to debt growth. Moreover, we show that a rise in upstream firms’ financial constraint level also leads to increased sensitivity of TFP growth to debt growth. Our results reveal important channels through which financial constraints could hinder productivity growth in Turkey.

Suggested Citation

  • Yusuf Kenan Bagir & Unal Seven, 2021. "Financial constraints and productivity growth: firm-level evidence from a large emerging economy," Working Papers 2132, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:2132
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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2021/21-32
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    More about this item

    Keywords

    TFP growth; Financial constraints; Debt growth;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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