Table 4: Total Factor Productivity and Banking Sector Performance: Transaction Efficiency

|TFP estimation procedure:|I<br>OLS|II<br>Olley/Pakes|III<br>OLS|IV<br>Olley/Pakes|V<br>OLS|VI<br>Olley/Pakes|
|---|---|---|---|---|---|---|
|Days to clear a foreign currency<br>wire|-0.055<sup>***</sup><br>[0.017]|-0.074<sup>***</sup><br>[0.019]|||-0.042<sup>**</sup><br>[0.019]|-0.071<sup>***</sup><br>[0.019]|
|Days to clear a domestic currency<br>wire|||-0.123<sup>***</sup><br>[0.029]|-0.041<sup>**</sup><br>[0.019]|-0.081<sup>**</sup><br>[0.032]|-0.036<sup>**</sup><br>[0.017]|
|Exporter|0.003<br>[0.047]|0.099<sup>*</sup><br>[0.058]|-0.006<br>[0.048]|0.102<sup>*</sup><br>[0.058]|-0.001<br>[0.048]|0.099<sup>*</sup><br>[0.058]|
|Age of the firm|0.017<br>[0.021]|0.046<sup>*</sup><br>[0.025]|0.015<br>[0.021]|0.043<sup>*</sup><br>[0.026]|0.02<br>[0.021]|0.05<sup>**</sup><br>[0.025]|
|Size of the firm|-0.001<br>[0.052]|-0.023<br>[0.063]|0.013<br>[0.052]|-0.02<br>[0.063]|0.005<br>[0.052]|-0.023<br>[0.063]|
|Foreign owned|0.176<sup>***</sup><br>[0.055]|0.156<sup>**</sup><br>[0.064]|0.186<sup>***</sup><br>[0.053]|0.164<sup>***</sup><br>[0.063]|0.18<sup>***</sup><br>[0.054]|0.158<sup>**</sup><br>[0.064]|
|Location in Capital Region|0.031<br>[0.051]|0.024<br>[0.061]|0.126<sup>**</sup><br>[0.054]|-0.009<br>[0.062]|0.107<sup>*</sup><br>[0.055]|0.052<br>[0.062]|
|Country dummies|Yes|Yes|Yes|Yes|Yes|Yes|
|Industrydummies|Yes|Yes|Yes|Yes|Yes|Yes|
|Observations|911|824|920|833|911|824|
|Adjusted R-squared|0.28|0.42|0.27|0.41|0.28|0.42|
|Robust standard errors in parentheses.<br>services related variables are used in reg|*, **, *** indic<br>ional averages.|ate statistical si<br>|gnificance at|the 10%, 5% and|1% levels, r|espectively. The|

In order to get a sense of the estimated order of magnitude of our effects, we repeat the hypothetical exercise of lifting Zambia, a country in the middle field, up to the level of South Africa. Based on the results in regression II, such an increase would bring a 5.8 percent increase in the productivity of firms in Zambia.

The second aspect of financial services we consider is the role of financial institutions in allocating savings among investment opportunities, by extending credit to firms. Being able to access credit is probably one of the most important services that a firm needs in order to optimize its investment decisions, but firms in Africa are often credit-constrained. In fact, firms in the Enterprise Surveys report access to and the cost of financing as the most severe obstacles to production and growth.

In order to evaluate the credit dimension, we have to rely on the subjective measures from the Enterprise Surveys. We use two types of proxy measures: one is the degree to which access to credit is perceived to be an obstacle for firms, averaged at the regional level. This variable measures access rather than cost. The second measure is the firms’ perception about the cost of obtaining finance. Since cost may be related to how much credit is extended, we additionally choose to control for the share of firms in a given region that had an outstanding loan in these regressions. For example, there may be cases in which only a select handful of firms get access to credit and enjoy a low interest rate.

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