Economics & Finance / Economic Theory / Development Economics

Africa's Hidden Crisis: Why $1 Invested Here Earns 50% More Than Next Door

Sebnem Kalemli-Ozcan, Bent E. Sorensen

In this deep dive, we unpack a groundbreaking study by Sebnem Kalemli-Ozcan and Bent E. Sorensen (NBER Working Paper No. 18030) that reveals a shocking truth about African manufacturing: capital is being wasted at an enormous scale. Using data from 10 African countries, the researchers show that the same $1 invested in one firm can earn 45% more than in another, simply because of bad property rights and broken banking systems. We explore why small businesses in Ghana pay 50% interest rates, how corruption kills reinvestment, and why South Africa and Botswana are doing it right. By the end, you'll understand the real reason Africa's economy lags—and what it will take to fix it.