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Access to Credit and the Effect of Credit Constraints on the Performance of Manufacturing Firms in the East African Region: Micro Analysis

October 1, 2013

The study set out to investigate the factors influencing manufacturing firms' access to credit and the effect of credit constraints on firm performance in the East African Community (EAC). We used the World Bank (2006)  enterprise survey for 5 EAC countries. We used both bivariate and multivariate approaches. The bivariate approach involved the use of crosstabulations by generating average percentages of manufacturing firms along some pertinent performance indicators. The multivariate approach involved employing simple probit, simple OLS, tobit, and a two-step probit model. Amongst the top five business constraints, electricity outages and costs were found to be the most severe business constraint followed by access to finance, high and volatile tax rates, corruption, and macroeconomic instability. Exporters are 10 years older than their counterparts while those that obtained a loan are 5 years older than their counterparts. Exporting firms and those that obtained a loan, compared to their counterparts, are bigger, have greater penetration of information technology. Manufacturing firms in the region are more concentrated in metal fabrications (34%) followed by the food processing sector (25%).