by Sebnem Kalemli-Ozcan, Bent E. Sørensen
Cato Institute
August 06, 2014
Property rights and robust financial systems lead to more efficient allocation of capital across firms in African countries. A number of recent studies argue that misallocation of resources is a prime cause of underdevelopment. This is a product of discrepancies between the marginal product of capital at each firm and the market interest rate. Identifying why misallocation varies from one country to the next allows one to explain why some countries have better allocation of capital across firms. Relatively successful countries like South Africa and Botswana tend to have stronger property rights and better-functioning financial systems than do relatively unsuccessful countries like Ghana and Nigeria.

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