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

Jul 19, 2026

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Examines how inefficient allocation of resources across heterogeneous firms contributes to total factor productivity (TFP) gaps in Sub-Saharan Africa (SSA). Uses comparable firm-level manufacturing censuses from Côte d’Ivoire, Ethiopia, Ghana, and Kenya to measure the extent, costs, and nature of within-industry misallocation. Finds severe reallocation of resources from high- to low-productivity firms, with large aggregate productivity gains under hypothetical equalization of marginal returns. Compares counterfactual results using World Bank Enterprise Surveys and highlights the need for census-type data linking firm microdata to aggregate outcomes.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages26

Reading Time1 h 6 min

AccessFree to download

Introduction

Data and framework for measuring misallocation

Findings on distortions, productivity, and reallocation gains

Pub lic Disclosure Authorized Pub lic Disclosure Authorized The World Bank Economic Review, 34(1), 2020, 75–100 doi: 10.1093/wber/lhy018 Article Taxing the Good? Distortions, Misallocation, and Productivity in Sub-Saharan Africa Xavier Cirera, Roberto Fattal-Jaef, and Hibret Maemir 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. JEL classification: C83, L11, O11, O47, O55 Keywords: distortions, misallocation, Enterprise Surveys, Sub-Saharan Africa, total factor productivity 1. Introduction One of the most enduring challenges in the field of economic growth and development is to understand the sources of the large variations in economic well-being across countries. While the literature acknowledges the role of cross-country differences in physical and human capital stocks, the current consensus is that total factor productivity (TFP) constitutes the predominant source of development gaps. This paper explores one of the most promising avenues for explaining TFP gaps – the inefficient allocation of resources across firms – in one of the poorest, yet least explored, regions in the world – Sub-Saharan Africa (SSA) . Combining novel census-based firm-level manufacturing databases with a structural theory of misallocation, the paper provides a characterization of the degree and nature of resource misallocation in Côted’Ivoire, Ethiopia, Ghana, and Kenya, as well as a quantification of the productivity losses associated with these inefficiencies. Xavier Cirera is a senior economist in Finance, Competitiveness, and Innovation Global Practice at the World Bank; his email is [xcirera@worldbank.org. Roberto N. Fattal](xcirera@worldbank.org. Roberto N. Fattal) Jaef (corresponding author) is an economist in the Development Research Group at the World Bank; his email is [rfattaljaef@worldbank.org. Hibret B. Maemir](rfattaljaef@worldbank.org. Hibret B. Maemir) is a research analyst in the Development Research Group at the World Bank; his email is [hmaemir@worldbank.org. This](hmaemir@worldbank.org. This) research was supported by the U.K. Department for International Development (DFID) through the Strategic Research Program (SRP) . We would like to thank Luis Serven and Nicolas Gonne for valuable comments. We also wish to thank Neil Rankin for generously providing us with the Ghanaian Census data. Any opinions and conclusions expressed herein are solely those of the authors and do not reflect the views of the World Bank. A supplementary online appendix for this article can be found at The World Bank Economic Review website. © The Author(s) 2019 . Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / THE WORLD BANK. All rights reserved. For permissions, please e-mail: [journals.permissions@oup.com](journals.permissions@oup.com). Downloaded from [https://academic.oup.com/wber/article/34/1/75/5543189 by International Monetary Fund user on 23 June 2021](https://academic.oup.com/wber/article/34/1/75/5543189 by International Mon

FAQs

What question does the paper address about economic development in Sub-Saharan Africa?

It investigates how inefficient firm-level allocation of resources contributes to TFP gaps across countries in Sub-Saharan Africa.

How does the paper measure allocative distortions and misallocation?

It measures deviations from an output-maximizing benchmark that equalizes marginal returns across comparable production units and summarizes the resulting dispersion in productivity and distortions.

What does the paper find about where resources are reallocated?

It finds evidence that resources are diverted away from high-productivity firms toward low-productivity firms, with the scale differing by country.

Jul 19, 2026

Uploaded by Aurelia