State-Business Relations, Financial Access and Firm Performance : A Causal Mediation Analysis

This study investigates the triangular relationship among state-business relations, financial access and economic performance in the Middle East and North Africa. We hypothesize that financial intermediation is a significant mediating factor in the relationship between state-business relations and firm performance. Employing a causal mediation analysis, results show that inefficient ties with the state are a cause of poor firm performance. Inefficient state-business relations reduce firm performance by 2.3 to 4.4 percent through access to finance and by 12 to 40 percent via its direct effect. About 3 to 16 percent of the total effect is mediated through financial access while the remaining is the direct effect