External credit and export decision: Evidence from Nigeria

Abstract This study examines the effect of external credit on the export decision of manufacturing firms in Nigeria using the 2014 World Bank Enterprise Surveys data. The paper employs an instrumental variable (IV) probit model to assess the empirical relations. The results reveal that both bank and nonbank credit positively and significantly drive firms' foreign market entry decision in Nigeria. Policy interventions should therefore be directed at creating an enabling environment that would stimulate an increase in the breadth and depth of financial presence across Nigeria. This may be done through offering special tax reliefs to banks and nonbank financial institutions that seek to expand. Banks should also be encouraged to invest in innovative strategies such as branchless banking and mobile banking which have the capability to increase access without the huge cost outlays for physical infrastructure. They should further be encouraged to develop special ‘export credit packages’ for smaller but viable firms that are willing to go into exporting but lack the necessary collateral, and create special ‘task forces’ to monitor and redeem such loans when they fall due. The Government should also channel ‘export development credit’ through banks and nonbank financial institutions to manufacturing firms in Nigeria for efficient allocation, monitoring and collection.