New Evidence on Why Many African Firms Perform Poorly

Abstract

This study examines a potential explanation for the poor performance of many African countries: African firms generally produce low value‐added and less ‘complex’ products due to a weak legal system and widespread corruption. Using data on manufacturing firms from Kenya, Ghana and Tanzania, this study finds that: (i) corruption and weak legal system are associated with lower efficiency among firms that produce more complex products and (ii) corruption matters more for firm efficiency than legal system. These results remain unchanged under various scenarios and may have important policy implications.