Institutions, Investment and Economic Growth: Evidence from Sub Saharan Africa (original) (raw)

2020, 4th International Research Conference of Uva Wellassa University 2020

The study examined the impact of financial liberalization on Nigerian manufacturing firms’ access to finance, using firm-level data of 3801 from WBES from 2007-2014. Although, cross-country literature extensively discussed on the effect of financial liberalization on credit constraints, the studies significantly overlooked the Nigerian case. To achieve this goal, the research developed a model based on the New Keynesian Theory of Credit Constraints and categorized the firms into four different constraints group, the results indicate that financial liberalization reduces the probability of being credit constrained, with the effect strongest for Deterred Investors and Active Investors. Increase in the degree of liberalization decrease the probability of being credit constrained by between 2 and 3 percent depending on the constraint definition. Furthermore, the result also provides evidence indicating that firms new to using financial system, that is New Entrants, do not benefit from financial liberalization. Thus, this points to the relevant of information asymmetry in the Nigerian financial market a significant factor exacerbating market imperfection especially in the developing countries. Such effect of financial liberalization on financial constraints can be link to weak institutional environment.

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