Taxing the Good? Distortions, Misallocation, and Productivity in Sub-Saharan Africa

37 Pages Posted: 24 Jan 2017 Last revised: 27 Apr 2018

See all articles by X. Cirera

X. Cirera

Institute of Development Studies; World Bank

Roberto Naim Fattal Jaef

World Bank

Hibret Belete Maemir

World Bank

Roberto N. Fattal Jaef

World Bank

Date Written: January 23, 2017

Abstract

This paper uses comprehensive and comparable firm-level manufacturing census data from four Sub-Saharan African countries to examine the extent, costs, and nature of within-industry resource misallocation across heterogeneous firms. The paper finds evidence of severe misallocation in which resources are diverted away from high-productivity firms toward low-productivity ones in all four countries, although the magnitude differs across countries. The paper shows that a hypothetical reallocation of resources that equalizes marginal returns across firms would increase manufacturing productivity by 31.4 percent in Cote d'Ivoire and as much as 162.7 percent in Kenya. The paper emphasizes the importance of the quality of the underlying data, by comparing the results against those from the World Bank Enterprise Surveys. The comparison finds that the survey-based results underestimate the extent of misallocation vis-a-vis the census. Finally, the paper finds that the size of existing distortions is correlated with various measures of business environment, such as lack of access to finance, corruption, and regulations.

Keywords: Food & Beverage Industry, Plastics & Rubber Industry, Textiles, Apparel & Leather Industry, Pulp & Paper Industry, Common Carriers Industry, Construction Industry, Business Cycles and Stabilization Policies, General Manufacturing, Employment and Unemployment, International Trade and Trade Rules, Macroeconomics and Economic Growth, Economic Policy, Institutions and Governance, Business Environment

Suggested Citation

Cirera, Xavier and Fattal Jaef, Roberto Naim and Maemir, Hibret Belete and Fattal Jaef, Roberto N., Taxing the Good? Distortions, Misallocation, and Productivity in Sub-Saharan Africa (January 23, 2017). World Bank Policy Research Working Paper No. 7949. Available at SSRN: https://ssrn.com/abstract=2904774

Xavier Cirera (Contact Author)

Institute of Development Studies ( email )

University of Sussex
Falmer, Brighton, East Sussex BN1 9RE
United Kingdom

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Roberto Naim Fattal Jaef

World Bank ( email )

1818 H Street NW
Washington, DC 20433
United States

Hibret Belete Maemir

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Roberto N. Fattal Jaef

World Bank

1818 H Street, NW
Washington, DC 20433
United States

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