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Survival and Success among African Manufacturing Firms

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  • Alan Harding
  • Måns Söderbom
  • Francis Teal

Abstract

Recent reforms in most African economies of their trading and exchange rate regimes have eliminated much of the protection which previously limited competition. Despite these reforms, African manufacturing firms remain unsuccessful, particularly in international export markets. In this paper we consider the roles of learning, competition and market imperfections in determining three aspects of firm performance, namely firm exit, firm growth and productivity growth. We use a pooled panel data set of firms in Ghana, Kenya and Tanzania that spans a period of five years. We find that the main determinant of exit is firm size, with small firms having much higher exit rates than large ones. Productivity impacts on firm survival among large firms, but not among small firms. Reasons for this result are discussed. We find evidence that, among surviving firms, old firms grow slower than young firms, which is interpreted as evidence consistent with market constraints limiting growth of firms in Africa. We find no evidence that larger firms have faster rates of productivity or input growth, or are more efficient in the sense of benefiting from scale economies. We also find that competitive pressure enhances productivity growth. Given that one of the objectives of the reform programmes implemented in all three countries was to stimulate higher efficiency levels, this finding shows that one aspect of the reform programme has been successful.

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Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2004-05.

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Date of creation: 2004
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Handle: RePEc:csa:wpaper:2004-05

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Cited by:
  1. Janvier D. Nkurunziza, 2005. "The Effect of Credit on Growth and Convergence of Firms in Kenyan Manufacturing," Economics Series Working Papers WPS/2005-01, University of Oxford, Department of Economics.
  2. World Bank, 2007. "Uganda - Moving Beyond Recovery : Investment and Behavior Change, For Growth, Volume 1. Summary and Recommendations," World Bank Other Operational Studies 7576, The World Bank.
  3. Janvier D. Nkurunziza, 2005. "Credit Can Precipitate Firm Failure: Evidence from Kenyan Manufacturing in the 1990s," Economics Series Working Papers WPS/2005-04, University of Oxford, Department of Economics.
  4. Ali, Merima & Peerlings, Jack H.M., 2011. "Farm Households Entry and Exit Into and From Non-farm Enterprises in Rural Ethiopia: Does Clustering Play a Role?," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114220, European Association of Agricultural Economists.
  5. World Bank, 2007. "Uganda - Moving Beyond Recovery, Investment and Behavior Change, For Growth, Volume 2, Overview," World Bank Other Operational Studies 7574, The World Bank.
  6. Klapper, Leora & Richmond, Christine, 2011. "Patterns of business creation, survival and growth : evidence from Africa," Policy Research Working Paper Series 5828, The World Bank.
  7. Arne Bigsten & Mans Söderbom, 2006. "What Have We Learned from a Decade of Manufacturing Enterprise Surveys in Africa?," World Bank Research Observer, World Bank Group, vol. 21(2), pages 241-265.

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