Working Paper Series: Special Edition of 2016 to 2018 Interns

SMEs can contribute to reducing unemployment levels, bolstering taxation revenues, creating opportunities to earn foreign exchange, reducing dependency on high level of imports and contributing to sustainable economic growth within the region. However, this would require strong political will and a unified regional collaboration on the part of policy and decision makers. Since SMEs are considered the engine of growth in most countries, it is necessary to focus on minimising the gaps and impediments to SME financing within the region. There have been a number of studies done examining factors affecting firms’ access to credit in Latin America and the Caribbean using World Bank Enterprise Surveys (WBES) data. Some studies (Schiffer &Weder, 2001) (Beck, et al., 2005) (Beck & Cull, 2014), investigated firm level, environmental and other factor determinants of financial constraints and obstacles to growth respectively for selected Caribbean countries. Specific to the ECCU, limited empirical studies have been conducted to date that thoroughly considers constraints to financing for SMEs. This paper offers a more comprehensive investigation of the constraints that SMEs face in the ECCU and CARICOM 1 . In particular, it seeks to add to the body of knowledge in this area by empirically assessing the factors affecting access to and demand for credit by SMEs using firm level data. The paper examines whether or not firm size plays a role in determining access to credit and the extent to which it is a major constraint relative to key factors affecting access as highlighted in the literature. These other factors include the type of industry, the region (CARICOM vs ECCU), legal status of the firm, manager’s education, ownership of the firm, relation with the bank and ownership of the banks. In addition, a comparative analysis of financing patterns based on firm size is done. Findings are consistent with other studies in the literature with small and medium firms more likely to be constrained relative to larger firms. The remainder of this paper is as follows. The next section reviews the literature. Section 3 looks at the data set and characteristics of the sample, as well as a brief description of the variables employed. Section 4 provides the empirical methodology and model specifications followed by

1 The selected CARICOM countries included are Barbados, Belize, Guyana, Jamaica, Suriname, Trinidad & Tobago, The Bahamas and The Dominican Republic.

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