Empirical Study On The Factors Influencing Bangladesh Sme Labor Productivity:A Perspective Of Access To Electricity,External Finance And Crimes

The growth of small and medium-sized enterprises assists domestic economic development in developing and under-developing countries since small and medium firms generate jobs,return on investments,and more economic synergy among small and medium enterprises,boosting the domestic multiplier outcome in companies.Small and medium firms contribute more to creating employment than large firms.However,labor productivity in low and middle-income countries is crucial to identify the impact of key drivers of a firm’s performance rather than more developed nations.Uninterrupted availability of access to electricity and access to finance,along with controlling crime losses is essential for the labor productivity and smooth functioning of an enterprise.Due to constrained by energy,financial resources,and crimes,small and medium firms in developing economies face a plethora of challenges concerning the access to electricity and access to external finance.However,less attention has been paid in the extant literature to explore these phenomenon.Yet,the relationship between access to electricity and firms’ size and how their inter-relation affects firms’ labor productivity is still unexplored.In addition,the association between financial access and firms’ quality,and how their interaction affects firms’ labor productivity is still untapped.Furthermore,the association between crimes and firms’ financial access and how their interaction impact on firm’s performance via labor productivity is still got less attention from researchers Moreover,prior studies did not apply robust econometric methods required to create pragmatic policy recommendations in the context of Bangladesh.Therefore,this research,seeks to fill these gaps.From these above mentioned viewpoints,this study aims to establish the impact of both access to electricity classified as electricity constrained and electricity obstacle,and firm size denoted as the number of employees;on SME labor productivity,respectively,in Bangladesh.It is essential because SMEs face low productivity issues as key challenges in under-developed and developing countries.This research also designs to examine the separate effect of electricity-constrained small and medium firms on labor productivity.To the best of our knowledge,this is a pioneering research along with significant contribution associates to more focused investigation on the interaction effects of firm size and electricity access,and how their interplay affects SMEs labor productivity in the context of developing countries.Furthermore,this research aims to establish the causal effect of both access to finance classified as financial accessed through bank loan acceptance and financial obstacle through owner’s perception,and firm quality denoted as export sales;on SME labor productivity,respectively in Bangladesh.It is mandatory because SMEs encounter poor productivity issues as crucial challenges in lower and middle income countries.This research also designs to study the separate effect of financially accessed direct and indirect export oriented SMEs on labor productivity.This research is one of the first initiatives to investigate the interaction between access to external finance and export sales,and labor productivity nexus in a cross-sectional framework in the context of Bangladesh.Again,this study aims to empirically investigates the impact of both crime classified as crime constraint and crime obstacle and financial obstacle denoted as SME owners perception of financial access,on SME firm performance,respectively,in the context of Bangladesh.It is crucial because firms encounter low performance issue as key obstacle due to widespread crime in lower and middle income countries.This research also designs to examine the individual impact of crime constrained SMEs’ on firm performance through labor productivity.This study depicts theoretical and practical linkage between the resource-based theory(RBT)and information asymmetry theory(IAT),along with the way these views serve as the base of this thesis.In particular,the aspects less clearly addressed by RBT and IAT are analyzed in this section.It also introduces,links RBV--IAT and its positive and contra concepts with the model selected for this thesis and provides a synthesis of the relationship between concepts.World Bank Enterprise Survey’s cross-sectional firm-level data for Bangladesh has been employed for which access to electricity,financial access and crime constraints data are available,including a total of 3196 of sample firms over the period between2007 and 2013.The survey data depicts business perception on the biggest obstacles to firm growth and the relative significance of different constraints to labor productivity through extended interviews on manufacturing and service-oriented firms.It is crucial to note that this survey is only conducted on formally registered firms,with a minimum of five employees,initially in the manufacturing and service industry.The number of employees is the most extensively used criterion in Bangladesh,selected by WBES to distinguish small and medium-sized enterprises.STATA software has been used to analyze our collected data.In the form of simple tabulation of frequency distributions,the raw data were transformed to a summary form by the calculating of averages,frequencies and percentages by descriptive and correlation analysis.The interlink was stated by OLS regression equation along with robust standard error to mitigate the possible impact of heteroscedasticity on the independent variables.In addition,we have used a method of propensity score matching(PSM),recommending that the role of the probability of receiving treatment complies with samples’ characteristics.The technique is developed on the probability of receiving treatment that is gained from probity regression,and it is subject to a set of observable features.The following conclusions have been reached through empirical analysis:(1)Electricity access was partially found to affect SMEs’ labor productivity significantly negatively.This study highlights that other external factors hinder the positive effect of electrification on firm performance.These include bureaucratic environments,lack of investment in advanced technologies,limited knowledge on the sustainable energy source,and bribes for new connections,public infrastructure deficiencies,and frequency of corruption.In addition,labor productivity is found to be positively significant with firm size.This study indicates that these firms are running at the maximum productivity level.This finding is similar to prior studies,which also summarize the positive relationship between firm size and labor productivity.These justify the significant positive impact of firm size on firm performance after controlling other variables.(2)SME firm size effect on the labor productivity for the electricity-constrained enterprise confirms that constrained SMEs were shown to lower productivity at a statistically significant level.Our findings tentatively suggest that production machine’s inefficiency and unplanned workers distribution may cause lower firm performance for electricity-constrained SMEs’ in Bangladesh.(3)External finance access is a potential explanation for higher SME labor productivity in developing countries like Bangladesh.This outcome is in line with prior studies and reinforce that access to external finance is significant function of labor productivity growth is SME industry.(4)Financial accessed SMEs’ along with higher level of export sales have lower labor productivity.This research indicates that other external determinants obstruct the positive effect of export on firm labor productivity.These include inefficient allocation of working capital,absorbs excessive resources,lack of knowledge on target markets and internationally uncompetitive capacity.(5)Access to external finance and export sales interaction effect is insignificant to SME labor productivity.Although probable reasons for this insignificant outcome were not examined in this study,possible explanations can be outlined from the prior articles contributions.The research recommended that financial system should be developed,particularly bonds and stock markets to ensure more finance channels toward firms’ productivity.Again,direct exports impact on credit-accessed SMEs’ labor productivity is insignificant in our thesis.However,our outcome demonstrates that minor obstacle on financially accessed indirect exports firms could indicate lower labor productivity in Bangladesh.Due to insignificant effect of direct export on firms’ productivity,our final outcomes tentatively recommend that external knowledge sourcing is crucial to develop innovativeness and internal knowledge for service oriented SMEs.(6)Firm performance via labor productivity is negatively significant to crime constraint and crime obstacle.This study emphasize that other factors incline the detrimental effect of crime on labor productivity.These includes weak security surveillance,poor incentives plan,absence of contingency plan for staff training and behavioral changes and firm’s inefficient crime prevention tactics.Furthermore,lack of financial obstacle and crime interaction results is statistically insignificant on labor productivity because crime constraints firms probably have insufficient access to finance for high security cost.Due to insignificant impact of lack of financial obstacle on crime-constrained SMEs ’productivity,our second outcome tentatively suggest that strengthening financial and judiciary system of firms is crucial to develop SME performance and business environment.The major contributions of this research are as follows:(1)A new research perspective has been addressed in extant literatures in relation to the electricity access,financial access,crime and SME labor productivity in Bangladesh.Currently,very few are known regarding these three constraints in SMEs sector,including the interaction effect of firm size,firm quality,and financial obstacle respectively.Hence,this study has extended the application of the resource-based theory(RBT)and information asymmetry theory(IAT),and their principles’ in explaining the interaction effect of electricity access and firm size on labor productivity,and contribute to the body of knowledge.To the best of our knowledge,this research is the first to explore the interaction effect of firm size and access to electricity,on SME labor productivity.We hope that the study will open the pathway towards further research on electricity constraints with firm size role along with other productivity factors.Furthermore,this is a groundbreaking investigation along with notable contribution related to more intense research on the interaction effect of crime and financial obstacle,and how their interlink affects SME firm performance in the context of middle-income economies.We expect this article will pave the way for future studies on crime with financial obstacles along with other performance indicators.(2)A new empirical model has been contributed to this dissertation to conduct study of labor productivity through extensive investigation on the interaction between access to external finance and export sales,and labor productivity nexus in a cross-sectional framework,which accumulate the both propensity score matching(PSM)and average treatment effect test(ATET)approach.This is an utmost and pioneering study in the context of Bangladesh.(3)A novel technique,treatment effects has been employed in dissertation through the propensity score matching(PSM)methodology,to our research area.In addition,using this method on sample data to develop comparable observations of firms along with access to electricity and access to finance to assume causal effects of a treatment on an event and,thus,to alleviate the endogeneity issue due to selection bias.PSM technique can alleviate self-selection,like the simultaneous interaction between access to electricity,access to finance and labor productivity in Bangladesh.