Family Önancing through loans for investment or intermediate input purchases may
allow relatively unproductive Örms to stay in the market, reducing average productivity
in the economy. To quantify this e§ect, we estimate a dynamic model of Örm behavior
using data from the Ghanaian Manufacturing Survey 1991-2002. A counterfactual
analysis with no family Önancing indicates an average productivity gain of about 10%
over 20 years relative to a situation where all Örms have access to family loans. This
increase in productivity is accompanied by large gains in average output produced. To
the extent that improving formal lending reduces the availability of family loans, this
suggests an additional channel through which improving credit market conditions may
increase productivity in developing economies.