Mobile Money, Challenges to Operation, and Capital Misallocation: A Study of Firms in Three East African Countries

Abstract

New technologies that are being adopted by firms in developing countries have the opportunity to solve issues that prevent optimal activity for these businesses. Using firm-level data collected as part of the World Bank Enterprise Surveys, I study businesses’ use of mobile money in order to investigate whether the novel mobile payment technology has allowed businesses to overcome the problem of capital misallocation across firms. Results indicate that mobile money usage is positively correlated to firm-perceived levels of challenges to operation including crime, lack of financial access, and political instability, suggesting that firms facing more difficulty due to these environmental challenges will utilize mobile money in an effort to overcome them. Analysis also reveals that the usage of mobile money corresponds to a 62 percent higher measure of capital distortion than non-usage of the technology, suggesting that businesses experiencing high costs of capital are taking up the mobile money technology. While this study does not ultimately reveal whether utilizing mobile money has led firms to attain more ideal levels of resources, these results imply that firms facing such issues are embracing the technologies, and signal the importance of developing and further studying such products in order to diminish inefficiencies in developing economies.