Impact of the business environment on output and productivity in Africa

We develop a general equilibrium model to assess the quantitative effects of the business environment, including regulations, crime, corruption, infrastructure and access to finance, on output and total factor productivity (TFP) in Sub-Saharan Africa. The first four dimensions are modeled as a tax on output and the finance dimension is modeled as a borrowing constraint. The model is simulated for a sample of Sub-Saharan African countries using the country-specific financial development and the country-specific joint distribution between productivity and taxes. We find that the simulated output and TFP are highly correlated with those in the data and the model accounts for 48% of the variation of output in the data. Access to finance alone accounts for 39% and the other four dimensions account for 11% of the dispersion in output.