6 Conclusion
Although SMEs contribute to local economic development, they face a set of challenges that prevents greater participation in the economy. Among them, SME growth remains an issue as levels of labor productivity in low- and middle-income countries are much lower than in more developed economies. In addition, lack of adequate access to external finance hinders SMEs from expanding their business operations due to information asymmetries between SMEs and financial intermediaries. Since SMEs may not have adequate access to lending technologies in order to mitigate asymmetric information, they may rely on exporting activities to mitigate the effects of credit constraint.
This study investigated the impact of both lack of access to external finance and project quality, measured as the percentage of export sales, on SME labor productivity. Our results indicate a positive relationship between project quality and labor productivity. We also found that SMEs that applied for bank loans but were rejected have lower levels of labor productivity than SMEs that obtained financing. In addition, constrained SMEs that export internationally were found to have higher labor productivity than constrained firms with lower access to export markets, although the role of project quality in explaining labor productivity for constrained SMEs may be due to direct export sales in most part.
