Essays on finance and international trade in Sub-Saharan Africa
Thesis (PhD)--Stellenbosch University, 2018.
ENGLISH SUMMARY : Access to finance has been noted as a vital ingredient in promoting international trade activities of firms. This thesis is a collection of three essays that investigate the effect of financial access on foreign trade activities in sub-Saharan Africa (SSA). Specifically, the study asks the empirical questions of whether access to external finance promotes the overseas market entry decision of firms and also enhances firms’ exports size. It also asks whether high levels of financial sector development can help spur commodity export diversification in SSA. The study solicits data from the World Bank and United Nations Conference on Trade and Development (UNCTAD) databases. The first essay examines the influence of external credit (bank credit and non-bank credit) on the likelihood of manufacturing firms to export in Nigeria. The findings show that access to both bank and non-bank credits positively and significantly drive the probability to export in Nigeria, suggesting that increased access to these sources of finance encourage more firms to internationalise in Nigeria. The second essay investigates the effect of external credit (bank credit and ‘suppliers and customer’ credit) on firms’ exports size in Nigeria. The findings here indicate that bank credit is exports-reducing while ‘suppliers and customer’ credit which is an alternative source of external credit to bank credit is positive and significantly drives exports size. This implies that while improved access to external credit is critical in enhancing firms’ exports size, exporters need to be mindful of the characteristics of such credit. The evidence thus far suggests that a relatively more flexible and affordable credit source with long-term repayment plan that meets exporters’ needs appears to be more exports-size promoting. The third essay determines how financial development affects commodity export diversification in SSA. The findings reveal a strong positive influence of financial development on commodity export diversification in SSA, suggesting that countries with high level of financial sector development may have more diversified export baskets. This study contributes to the extant literature in three unique ways. First, it shows that beyond bank credit, access to non-bank credit is also vital in overcoming the sunk and fixed costs of foreign market entry of Small and Medium-sized Enterprises (SMEs) in developing countries. Second, it expands the literature by showing that for an exporting SME to increase its exports size and remain buoyant in the market, structured finance in the form of ‘suppliers and customer’ credit is more important and serves the cause better than bank credit in developing economies. This is due to the flexibility in accessing ‘suppliers and customer’ credit coupled with the way it is designed to meet exporters’ needs relative to bank credit. Third, the study is also the first regional-level work that provides empirical insight into how financial development may affect export diversification in SSA and reveals that high financial sector development can help SSA countries diversify their export baskets.
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