Economic Strategy

Economic Strategy

Sectoral Credit Allocation and its Effect on Entrepreneurship in Developing Economies

Document Type : Original Article

Authors
Shahin Behdarvand 1
Ali Nassiri Aghdam 2
Mohammad Ghasemi Sheshdeh 2
1 Master Degree,, Faculty of Economics, Allameh Tabataba'i University
2 Assistant Professor, Faculty of Economics, Allameh Tabataba’i University, Tehran, Iran.
10.22034/es.2022.155465
Abstract
This paper investigates the effect of sectoral bank credit allocation on entrepreneurship in developing countries. We employ panel data on middle-income economies from 2005-2014, linking credit directed to non-financial firms in various sectors with two established measures of entrepreneurship: Total Early-Stage Entrepreneurial Activity (TEA) and new business entry density (ED).
The empirical analysis yields distinct insights for each measure. For a sample of 26 countries, a Feasible Generalized Least Squares (FGLS) model shows that credit channeled to the agricultural sector has a positive and significant relationship with the TEA index, whereas credit to households shows no such positive effect. In a larger sample of 57 countries, a Random Effects model demonstrates a positive and significant relationship between credit allocated to the industrial sector and the new business entry density (ED).
The study concludes that the sectoral destination of credit is a critical determinant of its effectiveness in stimulating entrepreneurship. These findings emphasize the need for policymakers to move beyond aggregate credit targets and consider the strategic allocation of credit to specific, high-impact sectors
Keywords
Entrepreneurship
Non-Financial Firm
Credit Allocation
Developing Country
Panel Data
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  • Receive Date 12 September 2021
  • Revise Date 29 March 2022
  • Accept Date 14 June 2022