it is systematically related to the level of development across space and time. More precisely, they found a stronger covariance between firm size and productivity in the United States than in Western European and more pronouncedly in Eastern European countries.

While the preceding papers have all focused on measuring the extent and cost of misallocation without knowing a particular policy/institution that may have caused such frictions, a number of recent papers have explicitly studied the consequences of specific policies or institutions. The theoretical contributions include: size-dependent policies (Guner et al., 2008; Garc ́ıa-Santana and Pijoan-Mas, 2014), credit-market imperfections (Midrigan and Xu, 2014), trade-related distortions (Melitz, 2003), capital-adjustment costs (Asker et al., 2014) and imperfect-information (David et al., 2014). Restuccia and Rogerson (2013) provide a good summary of this literature.

In a more recent work, Hsieh and Klenow (2014) focus on differences in the life-cycle of firms as an important mechanism by which frictions reduce aggregate productivity by distorting the incentive for firms to grow. They show that firm dynamics differ systematically across countries, with firms in developed countries growing much faster than those in poor countries over their life cycle. Hsieh and Klenow (2014) for instance, estimate that if U.S. firms exhibited the same dynamics as Indian or Mexican firms, aggregate manufacturing TFP would be roughly 25% lower.

There is a relatively smaller body of work that focuses on exploring misallocation and distortions in the business environment for firms in Sub-Saharan Africa. Perhaps the most salient contributions in this area are Kalemli-Ozcan and Sorensen (2012) and Aterido et al. (2011). The former explores capital misallocation in 10 African countries using the World Bank Enterprise Surveys and studies the extent to which access to finance can explain the dispersion in marginal returns to capital across countries. The latter explores the role of distortions in the business environment in explaining the differential employment growth across firms of different sizes.

Our paper makes two contributions to the literature. First, it adds to the body of work replicating the theory of misallocation and the strategy to measure it from the data developed by Hsieh and Klenow (2009). We expand the literature in exploring a region of the world where the data requirements for the application of the methodology have left it relatively unexplored. We remove this limitation assembling comprehensive and comparable data on manufacturing form in four countries. A second contribution of our work stems from the illustration of the importance of adequate coverage of firms in the data, in terms of representativeness of the sectoral coverage of firms in the economy. We show that the misrepresentation of sectors in the ES leads to lower degrees of measured misallocation and subdued gains from reallocation than what you would otherwise estimate from the census data.

# **3 Background**

We motivate our study reviewing features of the structure of production and the magnitude of the development gaps that characterize the economies of Cˆote d’Ivoire, Ethiopia, Ghana, and Kenya. Then, in order to get a sense of the quality of the business climate in which firms operate in these economies, we provide a brief account of reforms and salient packages of government interventions that were implemented over the course of the years.

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