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African Successes, Volume IIIModernization and Development$
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Sebastian Edwards, Simon Johnson, and David N. Weil

Print publication date: 2016

Print ISBN-13: 9780226315720

Published to Chicago Scholarship Online: May 2017

DOI: 10.7208/chicago/9780226315867.001.0001

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PRINTED FROM CHICAGO SCHOLARSHIP ONLINE (www.chicago.universitypressscholarship.com). (c) Copyright University of Chicago Press, 2019. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in CHSO for personal use.date: 14 October 2019

Misallocation, Property Rights, and Access to Finance

Misallocation, Property Rights, and Access to Finance

Evidence from within and across Africa

Chapter:
(p.183) 5 Misallocation, Property Rights, and Access to Finance
Source:
African Successes, Volume III
Author(s):

Sebnem Kalemli-Ozcan

Bent E. Sørensen

Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226315867.003.0005

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.

Keywords:   misallocation, firms, investor rights, financing obstacles, MPK

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