Determinants of the Financial Constraint and Its Effects on the SME Growth in Central Asia

This study investigates the firm- and country-specific factors that affect SMEs’ access to finance and the relationship between financial constraint and firm growth in emerging economies of Central Asia. To address the research questions, a two-stage empirical analysis including ordered probit, probit, and feasible generalized least squares (FGLS) specifications were conducted. Firm-level data used in the analysis is obtained from the fifth round of the Business Environment and Enterprise Survey (BEEPS V) and country-level data acquired from national and international datasets. The study's findings implied that in the Central Asian economies, country-specific factors are more likely to affect access to external finance of SMEs than firm-specific determinants. Among firm-specific factors, only foreign ownership is significantly related to financing constraint perception of SMEs; where, the interest rate is positively, and domestic credit market, inflation, and log of GDP per capita are negatively related to financing constraint level. In Central Asia, an insignificant relationship between growth and financing constraints was found. The determinants of financing constraints and access to finance–growth relations, which address the issue of great significance for SME growth in the selected countries, were interpreted with region-specific factors.