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Resource Misallocation and Financial Access Constraints: Evidence from Developing Countries

Author

Listed:
  • Mamadou Mouminy Bah

    (University Félix Houphouët-Boigny (UFHB), Department of Economics)

  • Mamadou Nouhou Diallo

    (University General Lansana Conté, Faculty of Economics and Management (FSEG)
    University Cheikh Anta Diop (UCAD), Laboratory of Finance for Development (LAFIDEV))

  • Jean Marcelin Bosson Brou

    (University Félix Houphouët-Boigny (UFHB), Department of Economics)

Abstract

This paper examines the extent of resource misallocation among firms with varying financial constraints using data from 15,797 manufacturing firms across 57 countries from the World Bank’s Enterprise Survey. Results show that constrained firms exhibit higher distortions, particularly capital distortions, leading to greater misallocation. Removing these distortions leads to a three-fold increase in total factor productivity (TFP), with the largest gains in Sub-Saharan Africa, East Asia & the Pacific regions. Constrained firms account for about 9% of these TFP gains, and higher distortions among these firms are negatively correlated with economic development, measured by GDP per capita. The findings highlight the importance of targeted finance policies linking access to firm productivity to reduce inefficiencies and enhance aggregate productivity, especially in developing countries.

Suggested Citation

  • Mamadou Mouminy Bah & Mamadou Nouhou Diallo & Jean Marcelin Bosson Brou, 2025. "Resource Misallocation and Financial Access Constraints: Evidence from Developing Countries," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 67(3), pages 554-622, September.
    • Handle: RePEc:pal:compes:v:67:y:2025:i:3:d:10.1057_s41294-025-00254-4
    DOI: 10.1057/s41294-025-00254-4
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    Keywords

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    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies
    • G1 - Financial Economics - - General Financial Markets

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