Few studies test for the effect of credit and convergence on firm growth in the context of a developing economy. The use of bank credit can affect firm growth in two opposite ways. The effect may be positive if credit allows a firm to address its liquidity constraint and increase investment and profitability. However, if macroeconomic shocks such as unexpected increases in interest rates make firm debts unsustainable, as experienced in Kenya in the 1990s, indebted firms may shrink or even collapse. Using microeconomic data on the Kenyan manufacturing sector, this study finds that conditional on survival, the firms that use credit grow faster than those not using it. There is also evidence that small firms grow faster than large ones, confirming the convergence hypothesis. These results are robust to alternative estimation procedures controlling for both endogeneity and selection bias.Africa, manufacturing sector, growth,
This paper investigates the impact of capital flight on poverty reduction through the investment and growth channel. It uses two approaches. First, the Incremental Capital-Output Ratio (ICOR) approach is used to estimate additional income that would have been generated if all capital flight had been invested domestically. The second approach uses capital stock to derive the potential effect of capital flight on income per capita and on poverty. The effect on poverty reduction is computed by taking into account country-specific and time-varying income-growth elasticity of poverty. The ICOR method suggests that the average annual rate of poverty reduction over the period 2000-2010 could have been 1.9 percentage points higher. The capital stock method generates an additional 2.5 percentage points per year above the current rate of poverty reduction. The evidence in this paper confirms that capital flight has significantly undermined African countries' efforts to reduce poverty.
This paper explores the relationship between commodity dependence and human development measured by the human development index (HDI). Commodity dependence negatively affects human development through several channels, including the negative secular terms of trade affecting commodity-dependent developing countries (CDDCs), slow economic growth, high macroeconomic instability, and political instability. The paper finds that although the effect of commodity dependence on human development is negative, on average, this relationship is complex. It changes with the level of dependence as well as the type of commodity a country depends on. This negative effect is strongest in countries where commodities account for more than 60 percent of total merchandise exports.
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