8 B o o s t i n g
P r o d u c t i v i t y i n S u b - Sa h a r a n A f r i ca
According to this framework, lower values of Ai reflect either slow adoption or inefficient use of technology. The efficient allocation in this economy maximizes final output and is characterized by two decisions: (a) the number of operating establishments (that is, establishments that can pay the fixed cost, c); and (b) the allocation of capital and labor across the operating establishments. If either of these decisions is distorted, the economy will have lower output and hence lower aggregate TFP—as aggregate factor inputs (K and H) in the industry are constant. An allocation of inputs that maximizes output across production units (say, either firms or farms) takes place when, conditional upon their operation, the marginal (and average) products are equal across all production units. In this equilibrium, no output gains would be obtained by reallocating inputs of production (such as capital, land, and labor) from production units with low marginal products to those with high marginal products. In the efficient allocation, the most productive operating establishments will demand more inputs. In other words, a production unit’s productivity and size are positively associated in the efficient allocation. In addition, production units with similar productivity levels command the same amount of inputs and are of identical size. Deviations from the efficient allocation of resources across firms may have implications for aggregate output and productivity. Input choices that differ from the efficiency model, even if they allocate more factors to the more-productive production units, will generate lower aggregate output. Given the constant aggregate amount of inputs (such as capital, land, and labor), the output loss associated with an inefficient allocation is also an aggregate TFP loss. In this context, misallocation refers to situations where resources are not allocated efficiently across production units, and the cost of misallocation is typically measured in terms of aggregate output or TFP losses. If the misallocation of resources across these different producers helps explain
cross-country differences in aggregate productivity levels, it is then crucial to investigate the sources of misallocation. Resource misallocation across different production units might reflect the following (Restuccia and Rogerson 2017): • S tatutory provisions, including some features of the tax code and regulations—for instance, tax code provisions that vary with firm characteristics (say, age or size); tariffs targeting certain groups of goods; employment protection measures; and land regulations, among others • Discretionary government (or bank) provisions that favor or penalize specific firms— for instance, subsidies, tax breaks, or low-interest loans granted to specific firms; preferential market access; and unfair bidding practices for government contracts, among others • Market imperfections such as monopoly power; market frictions (for example, in credit and land markets); and enforcement of property rights.
Dimensions of the Productivity Assessment The main objective of this report is to characterize the evolution of output and productivity in Sub-Saharan Africa. To accomplish this task, the report documents the region’s (labor and multifactor) productivity trends on an international, regional, and country basis. It benchmarks productivity levels and growth in Sub-Saharan Africa in relation to countries in other regions as well as in various African country groups, classified by their degree of natural-resource abundance and condition of fragility.8 Overall, the analysis of productivity trends is conducted for three different levels of data aggregation: aggregate, sectoral, and establishment.
Aggregate Level First, the report estimates the level and growth of labor and multifactor productivity in Sub-Saharan Africa (for the region as
