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Firm Heterogeneity and Market Selection in Sub-Saharan Africa: Does It Spur Industrial Progress?

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  • Admasu Shiferaw

Abstract

This article investigates the processes of market selection and industry dynamics in a sub-Saharan Africa context. Using census-based longitudinal data, it examines the distribution of productivity within an industry to determine whether patterns of firm entry, exit, and survival are driven by underlying efficiency differences. It also estimates the contributions to industry-level productivity growth of producer turnover and the reallocation of resources from less efficient producers to more efficient ones. The article shows that markets in sub-Saharan Africa, as represented by Ethiopia, are at least as strong as those in other regions in selecting efficient firms. Tolerance of inefficient firms also declines with the degree of exposure to international competition. While reallocation of resources played a positive and significant role for industry-level productivity growth, it only managed to offset the declining trend in intrafirm productivity. The article concludes that although markets have played the expected disciplinary role, long-term industrial growth requires more than functional markets, particularly in addressing firm-level innovation.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Economic Development and Cultural Change.

Volume (Year): 55 (2007)
Issue (Month): ()
Pages: 393-423

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Handle: RePEc:ucp:ecdecc:v:55:y:2007:p:393-423

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Web page: http://www.journals.uchicago.edu/EDCC/

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References

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  1. Tybout, James R, 1992. "Linking Trade and Productivity: New Research Directions," World Bank Economic Review, World Bank Group, vol. 6(2), pages 189-211, May.
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  5. Nelson, Richard R, 1981. "Research on Productivity Growth and Productivity Differences: Dead Ends and New Departures," Journal of Economic Literature, American Economic Association, vol. 19(3), pages 1029-64, September.
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  7. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-38, June.
  8. Tybout, James R. & Westbrook, M. Daniel, 1995. "Trade liberalization and the dimensions of efficiency change in Mexican manufacturing industries," Journal of International Economics, Elsevier, vol. 39(1-2), pages 53-78, August.
  9. Dani Rodrik, 1998. "Trade Policy and Economic Performance in Sub-Saharan Africa," NBER Working Papers 6562, National Bureau of Economic Research, Inc.
  10. Boyan Jovanovic & Glenn MacDonald, 1993. "Competitive Diffusion," NBER Working Papers 4463, National Bureau of Economic Research, Inc.
  11. James Tybout, 1999. "Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?," Development and Comp Systems 9906001, EconWPA, revised 10 Jun 1999.
  12. Macdonald, G.M., 1988. "Competitive Diffusion," University of Chicago - Economics Research Center 88-10, Chicago - Economics Research Center.
  13. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
  14. Amil Petrin & Brian P. Poi & James Levinsohn, 2004. "Production function estimation in Stata using inputs to control for unobservables," Stata Journal, StataCorp LP, vol. 4(2), pages 113-123, June.
  15. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
  16. Harrison, Ann E., 1994. "Productivity, imperfect competition and trade reform : Theory and evidence," Journal of International Economics, Elsevier, vol. 36(1-2), pages 53-73, February.
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Citations

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Cited by:
  1. Admasu Shiferaw, 2009. "Which Firms Invest Less Under Uncertainty? Evidence from Ethiopian Manufacturing," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 2, Courant Research Centre PEG, revised 30 Jun 2013.
  2. Shiferaw, Admasu, 2009. "Survival of Private Sector Manufacturing Establishments in Africa: The Role of Productivity and Ownership," World Development, Elsevier, vol. 37(3), pages 572-584, March.
  3. Fukunishi, Takahiro, 2013. "Political crisis and suspension of duty-free access in Madagascar : assessment of impacts on the garment industry," IDE Discussion Papers 422, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  4. Shiferaw, A., 2006. "Capital adjustment patterns and uncertainty in African manufacturing," ISS Working Papers - General Series 435, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
  5. Haile, Getinet Astatike & Srour, Ilina & Vivarelli, Marco, 2013. "The Impact of Globalization and Technology Transfer on Manufacturing Employment and Skills in Ethiopia," IZA Discussion Papers 7820, Institute for the Study of Labor (IZA).
  6. Admasu Shiferaw & Arjun Bedi, 2010. "The Dynamics of Job Creation and Job Destruction: Is Sub-Saharan Africa Different?," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 22, Courant Research Centre PEG.
  7. Shiferaw, A., 2006. "Entry, survival, and growth of manufacturing firms in Ethiopia," ISS Working Papers - General Series 19185, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
  8. Klapper, Leora & Richmond, Christine, 2011. "Patterns of business creation, survival and growth: Evidence from Africa," Labour Economics, Elsevier, vol. 18(S1), pages S32-S44.

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