Debt Financing and Manufacturing Firms’ Decision to Export: Evidence from Ghana

International Journal of Research and Scientific Innovation (IJRSI) | Volume VIII, Issue X, October 2021 | ISSN 2321–2705

Debt Financing and Manufacturing Firms’ Decision to Export: Evidence from Ghana

Benedict Afful Jr, PhD.¹, Emmanuel Quarshie², Joseph Kwasi Asafo^3
1Department of Economic Studies, School of Economics, University of Cape Coast, Ghana
²Cromwell Property Developers Ltd, East Legon, Accra, Ghana
³Network for Socioeconomic Research and Advancement (NESRA), Accra, Ghana

Abstract: Adequate financial health indeed accelerates the entry of firms into the export market. Many firms, already in the market, have also fizzled out of export market completely due to lack of finance. It is quiet obverse that debt financing influences not only firm’s performance but also firm’s decision export. Hence, evaluating the relationship between debt financing and manufacturing firms’ decision to export from Ghana have relevant policy implication in the context of developing country. To effectively address the objectives, the study employed the probit model on 377 manufacturing firms obtained from the World Bank Enterprise Survey data (Ghana). The study found that debt financing positively influences the decision to export. In other words, an increase in debt financing increases the firm’s probability of exporting in Ghana. Whiles female top managers are less likely to export than their male counterparts, firms with large workforce are more likely to export. Firms with experienced top managers are also likely to export their products. In terms of location, firms in Tema exports more than firms in Accra and Takoradi. The study recommends that the financial market of Ghana be developed to enable manufacturing firms’ source more external funds in the form of debt finance to enable them export.

Keywords – Ghana, Export, Cocoa, manufacturing, Finance

I. INTRODUCTION

Ghanaian firms export a significant number of key commodities and services. Among these commodities are: gold, cocoa, timber products, tuna, bauxite, aluminium, manganese ore, diamond, and horticulture. According to the Trading Economics (2020), China and Switzerland dominate Ghana’s export destinations with percentage shares of 17 percent and 15 percent respectively. From the period of 1960 to 2019, total exports of goods and services on the average contributed 23.73 percent of GDP with a minimum of 3.34 percent in 1982 and a maximum of 48.8 percent in 2000 (World Development Indicators, 2020). It is not surprising to have the minimum and the maximum export contributions to GDP in these years given the support around those years. According to Jebuni, Oduro, Asante and Tsikata (1992), the contribution of export to GDP was low in 1982 because there was no automatic access to export finance although there were interesting policies. However, in the year 2000, the African Growth and Opportunity Act (AGOA) was launched with the aim of encouraging export-led growth, economic development and improve U.S. economic relations with Africa.

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