The Historical Roots of Firm Access to Finance: Evidence from the African Slave Trade

We examine how the historical slave trade in Africa is linked to the present day business environment. We show that: (1) The slave trade is strongly linked to present day levels of firm access to finance; (2) Among all the business obstacles a firm faces (e.g., enforcing contracts, tax rates) the slave trade only affects access to finance; and (3) The historical presence of the slave trade not only erodes access to formal credit, but also reduces the supply of trade credit from suppliers and customers thought to substitute for formal channels. These results provide a firm-level mechanism to explain the link between the slave trade in Africa and present day GDP. The results also suggest a causal link between culture and finance, and imply that cultural impediments are the binding constraint on firm performance.