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© 2022 International Monetary Fund
WP/22/249
IMF Working Paper
European Department
Financial Constraints, Productivity, and Investment: Evidence from Lithuania
Prepared by Karim Foda, Yu Shi, and Maryam Vaziri
Authorized for distribution by Bernardin Akitoby
December 2022
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: This paper studies the relation between firms’ access to finance, labor productivity and investment using Lithuanian firm-level data from 2000–2018. To do so, we construct a measure of financial constraints. We estimate that, given firm characteristics, removing these constraints can improve average productivity and investment of firms in Lithuania by 0.51 percent and 7.2 percent, respectively. Our results further suggest that policies targeting firm age and size together will be more effective in mitigating the impact of financial constraints as the relationship between firm age and size with financial constraints exhibits non-linearities.
RECOMMENDED CITATION: Foda, Karim, Yu Shi, and Maryam Vaziri, 2022, “Financial Constraints, Productivity, and Investment: Evidence from Lithuania”
| JEL Classification Numbers: | D25, E23, O16 |
| Keywords: | Financial Constraints; Productivity; Investment; SMEs; Transition Economies |
| Author’s E-Mail Address: | KFoda@imf.org; YShi2@imf.org; MVaziri@imf.org |
| JEL Classification Numbers: | D25, E23, O16 |
| Keywords: | Financial Constraints; Productivity; Investment; SMEs; Transition Economies |
| Author’s E-Mail Address: | KFoda@imf.org; YShi2@imf.org; MVaziri@imf.org |
Title Page
WORKING PAPERS
Financial Constraints, Productivity, and Investment
Evidence from Lithuania
Prepared by Karim Foda, Yu Shi, and Maryam Vaziri1
Contents
1. Introduction
1.1 Literature Review
2. Data
3. Methodology
3.1 Measure of Financial Constraints
3.2 Empirical Strategy
3.3 Financial Constraints, Labor Productivity, and Investment
4. Results
4.1 Index for Financial Constraints
4.2 Financial Constraints, Labor Productivity, and Investment
4.4 Financial Constraints, Firm Age, and Size
5. Conclusion
References
Appendix
Firm’s Age Distribution:
Firms’ Age-Size Distribution:
Description of the Measure of Financing Constraint
“The authors would like to thank Borja Garcia, Alfredo Cuevas, and participants of the EUR seminar for their valuable comments. All errors in the paper are of the authors.