# 2. Related literature

Prior research has documented numerous challenges with respect to aggregate productivity and the private sector in Zambia. World Bank (2019b) and the first chapter of World Bank (2024)<sup>2</sup> detail Zambia’s recent economic performance. They document how Zambia’s real GDP growth of 7.7 percent per year between 2001 and 2010 was mostly driven by mining. However, growth slowed significantly in the 2010s, with GDP growth falling despite increased public investment. On an economy-wide basis, labor productivity growth averaged 3.7 per year in the 2000s but reversed in the 2010s, remaining negative for most years over the 2011-2020 period. Since 2000, within-sector productivity gains were negligible in most sectors, with any productivity gains that did occur mostly coming from inter-sectoral reallocation of resources from less to more productive sectors (World Bank 2024). At the firm level, Hoy, et al. (2022) leverage firm-level tax data to analyze the impact of the COVID-19 pandemic on formal firms in Zambia, documenting large declines in sales and employment in formal firms at the outset of the pandemic, followed by a rapid recovery in sales but less robust recovery in employment.

Merotto (2017) analyzes trends in labor supply in Zambia through Labour Force Survey data, finding evidence of growing underemployment in Zambia. He shows how, despite the share of working-age workers employed in waged jobs increasing from 17 to 29 percent between 2008 and 2014, the bulk of new job creation continues to be informal, with wide wage gaps between the formal and informal sectors, between rural and urban workers, between men and women, and between unskilled and skilled workers. He further leverages data from Zambia’s 2012 Economic Census to analyze labor demand, finding low rates of micro firm survival and low productivity in manufacturing sectors.

This paper seeks to fill gaps in the literature with respect to recent firm-level productivity dynamics in Zambia. Research on productivity in Zambia tends to focus on macroeconomic data (World Bank 2024, World Bank 2019b) or rely on Economic Census data, which were last collected in 2012 and do not constitute a panel (Merotto 2017). Although Hoy, et al. (2022) do analyze more recent tax data—indeed, the same Corporate Income Tax database that this paper leverages—their research focus is more narrowly on firm performance during COVID-19. Enriching the understanding of such firm-level productivity dynamics would allow for a deeper understanding of the drivers and constraints of productivity, job creation, and wages, differentiating between the contributions of economy-wide issues, structural change between sectors, within-sector market dynamics, and within-firm technical efficiency (Cusolito and Maloney 2018). This could in turn yield more specific policy insights and uncover priorities for further research.

In terms of its methodological approach and key topics of interest, this paper is related to other studies that decompose productivity and job trends within countries utilizing firm-level data. Olley and Pakes (1996), Melitz and Polanec (2015), and Patiño Peña and Ferro (Forthcoming), among others, develop methods for decomposing productivity growth into between-, within-firm, entry, exit, and inter-sectoral components—and applied these methods to the United States and Slovenia, respectively.<sup>3</sup> Similar productivity analyses and decompositions have since been conducted for Côte d’Ivoire (World Bank 2021a), Croatia (World Bank 2022a), Ecuador (Patiño Peña and Ferro Forthcoming), Kosovo (World Bank 2021b), and Türkiye (World Bank 2019a), among other countries. Findings vary widely across countries,

> 2 This paper is a background technical note on which the third chapter of World Bank (2024) is based, whereas the first two chapters were authored in parallel with this paper.

3 For a more detailed overview of the productivity estimation literature, refer to Cusolito and Maloney (2018).

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