Financial Access Constraints, Misallocation and Firm Performance in the Zimbabwean Informal Manufacturing Sector

Working Paper
Published on 8 October 2019

Abstract

In this paper, Kamutando (2019) examines the link between financial constraints, misallocation and firm growth in the informal manufacturing sector in Zimbabwe. Using the employee-employer panel dataset on the informal manufacturing sector survey collected between 2015 and 2018, the author explores if financial access constraints attenuate or exacerbate misallocation for high productive firms. He then calculate the aggregate TFP loss as a result of capital misallocation. He further investigates whether financial access constraints hinder productivity-enhanced growth by limiting investment and employment growth activities for high productivity firms. The author finds a high presence of financial access constraints, which are a major source of misallocation that reduces aggregate TFP. He finds aggregate TFP loss of around 32% as a result of capital misallocation. Further, the authors finds evidence suggesting that financial access constraints are limiting investment activities but not employment. Hence, the need for a policy that promotes ease of access to finance by relatively more productive firms in the informal sector.

Authors

Godfrey Kamutando

University of Cape Town