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Misallocation, Property Rights, and Access to Finance: Evidence from Within and Across Africa

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  • Kalemli-Ozcan, Sebnem
  • Sørensen, Bent E

Abstract

We study capital misallocation within and across 10 African countries using the World Bank Enterprise Surveys. First, we compare the extent of misallocation among firms within countries. We document high variation in firms' marginal product of capital (MPK), implying that countries could produce significantly more with the same aggregate capital stock if capital were allocated optimally. Such variation differs from country to country with some African countries (success stories) closer to developed country benchmarks. Small firms and non-exporters have less access to finance and have higher returns to capital in general. Self reported measures of obstacles to firms' operations suggest access to finance is the most important obstacle: A firm with the worst access to finance has MPK 45 percent higher than a firm with the worst access to finance as a result of low capital per worker. We compare average levels of the MPK across countries, finding evidence that the strength of property rights and the quality of the legal system help explain country-level differences in capital misallocation.

Suggested Citation

  • Kalemli-Ozcan, Sebnem & Sørensen, Bent E, 2014. "Misallocation, Property Rights, and Access to Finance: Evidence from Within and Across Africa," CEPR Discussion Papers 9859, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:9859
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    References listed on IDEAS

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    1. Simon Johnson & John McMillan & Christopher Woodruff, 2002. "Property Rights and Finance," American Economic Review, American Economic Association, vol. 92(5), pages 1335-1356, December.
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    7. Thorsten Beck & Asli Demirgüç-Kunt & Vojislav Maksimovic, 2005. "Financial and Legal Constraints to Growth: Does Firm Size Matter?," Journal of Finance, American Finance Association, vol. 60(1), pages 137-177, February.
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    Cited by:

    1. Diego Restuccia, 2013. "factor misallocation and development," The New Palgrave Dictionary of Economics, Palgrave Macmillan.
    2. Diego Restuccia & Richard Rogerson, 2013. "Misallocation and productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 1-10, January.
    3. Liliana Varela, 2015. "Reallocation, Competition and Productivity: Evidence from a Financial Liberalization Episode," Working Papers 2015-042-23, Department of Economics, University of Houston.
    4. Henderson, J. Vernon & Roberts, Mark & Storeygard, Adam, 2013. "Is urbanization in Sub-Saharan Africa different ?," Policy Research Working Paper Series 6481, The World Bank.
    5. Miguel A. León-Ledesma & Dimitris Christopoulos, 2016. "Misallocation, Access to Finance, and Public Credit: Firm-Level Evidence," Asian Development Review, MIT Press, vol. 33(2), pages 119-143, September.
    6. Mitsukuni Nishida & Amil Petrin & Martin Rotemberg & T. Kirk White, 2016. "Measuring Cross-Country Differences in Misallocation," Working Papers 16-50, Center for Economic Studies, U.S. Census Bureau.

    More about this item

    Keywords

    Financing Obstacles; Firms; Investor Rights; Marginal Product of Capital; Misallocation;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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