Abstract
The stock of financial literature reveals emerging and conflicting stands on the effect of finance on the performance of the economy. The previous thoughts considered finance into account as an important driving force to growth through its role in intermediation, reduction of transaction costs and risk, and efficient uses of resources. Nevertheless, the newly emerging thoughts focus on the vanishing effect of finance due to its stiff competition over resources with the rest of the economy. The dialogues also reflected in the process of industrialization and promoting the manufacturing sector. Therefore, the general objective of this study is to reexamine the impact of financial services on the performance of manufacturing firms in Ethiopia with a special focus on firms in Addis Ababa. The study used propensity score matching method. The result shows that those who access finance has increased their operating margin profit by 2.6 on average in comparison with the non-treated groups. The treated groups have 0.42 greater net return on a net asset than non-treated groups on average. Therefore, the study suggests that financial institutions should increase their involvement to expand the accessibility of financial products to manufacturing firms that are the expected engines of sustainable growth and economic transformation.
Highlights
It is believed that finance plays a pivotal role in activating the performance of an economy and filling the resource gaps in business activities
The propensity score matching methods are employed to evaluate if the firms that took credits have a significant impact on the profitability of manufacturing firms in comparison with untreated groups
The two-sample t-test to check the credit access program is significantly related to the outcome variable of the manufacturing firms
Summary
It is believed that finance plays a pivotal role in activating the performance of an economy and filling the resource gaps in business activities. It places a strong contribution to speeding up the process of economic transformation which is highly required to cure the problem of developing countries. Ethiopia in this regard is a predominantly agrarian economy with a limited share of the manufacturing sector in GDP, around 5 percent over the last decades. The manufacturing sector, in particular, has been constrained by a lack of finance, crippling down the role of industry in the economy. The majority of bank credit has been allocated to the service sector to run a small business and hotel activities, less attention to the manufacturing sector over the last decades. The public banks constitute 77 percent of total assets of the banking sector, and around 80 percent of their total outstanding loans are used to finance public investments, adversely affecting the privately owned manufacturing industries (MoEFC, 2016)
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
