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

This paper examines the effect of access to credit on productivity of enterprises, using data from the nationally representative sample survey on 'access to financial services' in Bangladesh. It defines 'individual factor productivity' in terms of output-input relationship and the 'total factor productivity' as a difference between actual output and predicted output of capital and labor.

The paper states that credit can affect productivity in two ways: through increasing productivity of labor and capital, and by improving organizational and management efficiency. Access to credit is endogenously determined while participation in credit market is of self-selection. To overcome the problem of encountering of two econometric issues: endogeneity and selection biasness, the study used instrumented 2SLS and GMM method. The major findings include:

• Access to credit has significantly in?uenced the average productivity of labor in a positive way, while it does not significantly impacted the average productivity of capital;
• Access to credit improves the total factor productivity;
• Age of the enterprise influences productivity positively;
• Microenterprise has a higher average productivity of labor as well as the total factor productivity.