Profitable firms also tend to attract capital from the capital markets resulting in a situation where capital is not necessarily flowing to the most efficient or innovative firm but to the one making the biggest profits. Often, the presence of large and persistent profits is a sign of market inefficiency, and not of the quality of the entrepreneurs running the firms.
According to Fedderke, Kularatne and Mariotti (2007), manufacturers in South Africa enjoy relatively high mark-ups, yet investment levels are fairly low. This pattern is evident in other sectors too, with high mark-up and large profits not necessarily translated into higher rates of fixed investment. There are of course several proposed approaches to prioritising economic reforms and these are often underpinned by ideology.