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Financial Inclusion and Firms performance

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2015_05_26_seminar_bdf_ferdi_financial_inclusion.pdf (296.6Kb)
Date
2015
Dewey
Croissance et développement économiques
Sujet
Financial development; Financial inclusion; Firms peformance
JEL code
G.G1.G10; O.O1.O16; O.O5.O50
Conference name
Séminaire Banque de France / Ferdi
Conference date
05-2015
Conference city
Paris
Conference country
France
URI
https://basepub.dauphine.fr/handle/123456789/15070
Collections
  • LEDa : Publications
Metadata
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Author
Chauvet, Lisa
status unknown
Jacolin, Luc
143593 Banque de France
Type
Communication / Conférence
Item number of pages
24
Abstract (EN)
This study focuses on the impact financial development on the performance of firms in countries with low financial development. Previous studies focusing on financial depth alone find that financial development does not affect, or has a negative effect on, economic growth in developing countries with undersized financial systems. Using firm-level data in panel for a sample of 26 countries, we find that this hypothesis is invalidated if one takes into account not only financial depth but also financial inclusion, i.e. the distribution of access to financial services. Contrary to developed countries where financial inclusion is nearly universal, differences in access to credit among firms help explaining differences in firms perfor- mance. We measure financial inclusion as the share of firms who have access to bank overdraft facilities, or, alternatively, to any external source of financing, at the sectoral level. We find that whereas financial devel- opment does not affect firm performance on average, financial inclusion has a positive effect on firms growth. Where financial inclusion is low, financial development may create crowding out effects in favor of a minority of firms or government that phase out or reverse its expected positive effects of financial development on growth. Additional testing show that these effects affect all firms, irrespective of size, or whether they have access to bank credit or not. We interpret these results as showing that financial deepening increases firms growth only if it widely distributed among firms, i. e. financial inclusion is high.

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