Colonialism in Sub-Saharan Africa, Access To Finance, and Firm Growth

Abstract

Whether adequate access to external finance matters for firm-growth remains an unsettled debate in the finance literature, mainly because of endogeneity concerns. In this paper, we approach these concerns with two instruments constructed from colonial history that plausibly explain the current variations in financial development across sub-Saharan African (SSA) economies. We conjecture that these instruments–– the firm's distance from a colonial railway station and whether it is located in an area that had colonial settlements—provide potential channels of impact that identify the present-day effects of access to finance on firm-growth across SSA. By using these instruments, empirical results underscore the primacy of access to finance in firm-growth and consistently suggest that firms with access to finance are more likely to experience higher revenue growth and asset growth. Overall, our results are consistent and robust to alternative specifications and highlight the importance of access to finance for firms. Our findings provide policy implications on the development of the banking sector as well as private sector development. © 2025 Elsevier B.V.