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Determinants affect the access to formal- informal finance and its impact on sales growth

(A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS, VIETNAM – THE NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS)


By Hoang Quynh Trang (VNP 20)

Academic Supervisor: Dr. Truong Dang Thuy



Do different sources of finance make different sales growth? In this study, I used a dataset from Small and Medium sized enterprises (SMEs) in Vietnam in 2013 to explore the determinants affect the probability of access to formal and informal finance and its impact on growth rate. By employing bivariate probit model and instrumental variable method to solve endogeneity problem, this study finds that while formal finance plays significantly positive role in improving firm performance, informal finance goes on opposite direction on growth rate. Besides, in term of accessibility to official finance, firm size, receiving government assistance and good connection with banks have more advantageous than other factors. Social networks such as network with banks and others also are found significantly positive effect on the probability of obtaining non-official finance. More interestingly, this study also points out that young entrepreneurs are more likely to select informal sector to finance their business operation than the old ones.

Keywords: formal, informal, access to financing, sales growth, Vietnam.

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Full version is available at Library of Vietnam-Netherland Progamme: 1A Hoang Dieu, Phu Nhuan Dist, Ho Chi Minh city, Vietnam.