Allocative efficiency between and within the formal and informal manufacturing sector in Zimbabwe

Godfrey Kamutando and Lawrence Edwards
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Godfrey Kamutando: Post-doctoral Research Fellow, School of Economics, University of Cape Town and Policy Research in International Services and Manufacturing (PRISM).

No 302, SALDRU Working Papers from Southern Africa Labour and Development Research Unit, University of Cape Town

Abstract: Resource misallocation has the potential to reduce aggregate total factor productivity and undermine industrial development. These effects can be particularly pronounced in emerging economies where large market frictions impede efficient resource allocation. This paper investigates the extent and nature of resource misallocation between and within the formal and informal manufacturing sector in Zimbabwe. Applying the approach developed by Hsieh & Klenow (2009) to firm-level microdata, the results reveal extensive resource misallocation in both the formal and informal manufacturing sector. Misallocation is more pronounced in informal sector firms and is associated with relatively large capital market distortions. Further, misallocation is more pronounced amongst relatively productive firms, thus exacerbating aggregate losses in total factor productivity (TFP). Estimates indicate that aggregated gains in TFP of 126.7% can be realized through efficient resource allocation.

Keywords: Misallocation; total factor productivity; informal sector (search for similar items in EconPapers)
JEL-codes: D24 E24 E29 L60 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-dev, nep-eff, nep-fdg and nep-iue
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https://www.opensaldru.uct.ac.za/handle/11090/1035 Full text (application/pdf)

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Journal Article: Allocative Efficiency between and within the Formal and Informal Manufacturing Sectors in Zimbabwe (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ldr:wpaper:302

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