Family Financing and Aggregate Manufacturing Productivity in Ghana

Family …nancing through loans for investment or intermediate input purchases may allow relatively unproductive …rms to stay in the market, reducing average productivity in the economy. To quantify this e¤ect, I estimate a dynamic model of …rm behavior using data from the Ghanaian Manufacturing Survey 1991-2002. A counterfactual analysis with no family …nancing indicates an average productivity gain of about 10% over 20 years relative to a situation where all …rms have access to family loans. This increase in productivity is accompanied by large gains in average output produced. To the extent that improving formal lending reduces the availability of family loans, this suggests an additional channel through which improving credit market conditions may increase productivity in developing economies. I would like to thank Patrick Bajari, Amil Petrin, Chris Timmins, Gergely Ujhelyi, and seminar participants at the University of Minnesota, Rice University and NEUDC 2012 for comments and suggestions.