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

Abstract This paper uses comprehensive and comparable firm-level manufacturing censuses from four Sub-Saharan African (SSA) countries to examine the extent, costs, and nature of within-industry resource misallocation between heterogeneous production units. This paper finds evidence of severe misallo...

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Bibliographic Details
Published in:The World Bank economic review 2020-02, Vol.34 (1), p.75-100
Main Authors: Cirera, Xavier, Fattal-Jaef, Roberto, Maemir, Hibret
Format: Article
Language:English
Subjects:
DISTORTIONS
ENTERPRISE SURVEY
MANUFACTURING CENSUS
MISALLOCATION
RESOURCE ALLOCATION
TOTAL FACTOR PRODUCTIVITY
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Summary:Abstract This paper uses comprehensive and comparable firm-level manufacturing censuses from four Sub-Saharan African (SSA) countries to examine the extent, costs, and nature of within-industry resource misallocation between heterogeneous production units. This paper finds evidence of severe misallocation in which resources are diverted away from high-productivity firms towards low-productivity ones, although the magnitude differs across countries. Estimated aggregate productivity gains from the hypothetical equalization of marginal returns range from 30 percent in Côte d’Ivoire to 160 percent in Kenya. The magnitude of reallocation gains appears considerably lower when performing the same counterfactual exercise based on the World Bank Enterprise Surveys once the value-added shares of industries are adjusted using the census data. This suggests that linking firm-level survey data to aggregate outcomes requires census-type data or sampling methods that take the true structure of production into account.
ISSN:0258-6770
1564-698X
1564-698X
DOI:10.1093/wber/lhy018