Assessing the impact of infrastructure quality on firm productivity in Africa: Cross‐country comparisons based on investment climate surveys from 1999 to 2005

Abstract

This paper provides a systematic, empirical assessment of the impact of infrastructure quality on the total factor productivity (TFP) of African manufacturing firms. This measure is understood to include quality in the provision of customs clearance, energy, water, sanitation, transportation, telecommunications, and information and communications technology (ICT). We apply microeconometric techniques to investment climate surveys (ICSs) of 26 African countries carried out in different years during the period 2002–6, making country‐specific evaluations of the impact of investment climate (IC) quality on aggregate TFP, average TFP, and allocative efficiency. For each country we evaluated this impact based on 10 different productivity measures. Results are robust once we control for observable fixed effects (red tape, corruption and crime, finance, innovation and labor skills, etc.) obtained from the ICSs. We ranked African countries according to several indices: per capita income, ease of doing business, firm perceptions of growth bottlenecks, and the concept of demeaned productivity (Olley and Pakes 1996). We divided countries into two blocks: high‐incomegrowth and low‐income‐growth. Infrastructure quality has a low impact on TFP in countries of the first block and a high (negative) impact in countries of the second. We found heterogeneity in the individual infrastructure elements affecting countries from both blocks. Poor‐quality electricity provision affects mainly poor countries, whereas problems dealing with customs while importing or exporting affects mainly faster‐growing countries. Losses from transport interruptions affect mainly slower‐growing countries. Water outages affect mainly slower‐growing countries. There is also some heterogeneity among countries in the infrastructure determinants of the allocative efficiency of African firms.