Once it is viable, capital is naturally invested where its marginal product is highest, which in turn increases the marginal product of its compliments, like labour.
I think the main challenge is finding out how to make investments viable, which is really hard for a number of reasons that are often grouped into the term “poor business environment”. It seems like the debate centers around whether anything can be done to improve the business environment, or if we’re better off treating the symptoms of poverty while economies sort themselves out.
What you describe above would happen in an efficient market, but stock markets barely exist in most sub-saharan countries so I think most SSA economies are operating far from efficiently. It seems like private equity deals, or doing due diligence for PE deals could have a big impact. Most private equity in SSA is growth equity rather than leveraged buyouts, and the counterfactual is probably some other risky investment that might not have as much development impact. This is an understudied area, but I’m excited to see the results of this research from IPA.
I think the main challenge is finding out how to make investments viable, which is really hard for a number of reasons that are often grouped into the term “poor business environment”. It seems like the debate centers around whether anything can be done to improve the business environment, or if we’re better off treating the symptoms of poverty while economies sort themselves out.
What you describe above would happen in an efficient market, but stock markets barely exist in most sub-saharan countries so I think most SSA economies are operating far from efficiently. It seems like private equity deals, or doing due diligence for PE deals could have a big impact. Most private equity in SSA is growth equity rather than leveraged buyouts, and the counterfactual is probably some other risky investment that might not have as much development impact. This is an understudied area, but I’m excited to see the results of this research from IPA.