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Inventories, Liquidity, and Contractual Risk in African Manufacturing

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Author Info
Marcel Fafchamps Jan Willem Gunning
Remco Oostendorp

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Abstract

This paper tests whether the stockout/precautionary motive applies to inventories and liquid assets held by Zimbabwean manufacturing firms. The evidence indicates that involvement in imports and exports is a major source of contractual risk. Concerns about the timeliness of input deliveries and late payment by clients are primary motives behind the accumulation of inputs and, to a lesser extent, the constitution of cash reserves. This is consistent with the role of inventories as a hedge against stockout risk. We find little evidence of inventory and liquidity build-up against market risk, but this may be an artifact of the way fluctuations in sales are measured in the data. Perfect fungibility between various inventories and between inventories and liquid assets is rejected. Implications for policy are discussed.

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Paper provided by Stanford University, Department of Economics in its series Working Papers with number 97020.

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Handle: RePEc:wop:stanec:97020

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. McIntosh, James, et al, 1993. "Price and Output Adjustment in a Model with Inventories: Econometric Evidence from Categorical Survey Data," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 657-63, November. [Downloadable!] (restricted)
  2. Blanchard, Olivier J, 1983. "The Production and Inventory Behavior of the American Automobile Industry," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 365-400, June. [Downloadable!] (restricted)
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  3. Coate, Stephen & Ravallion, Martin, 1993. "Reciprocity without commitment : Characterization and performance of informal insurance arrangements," Journal of Development Economics, Elsevier, vol. 40(1), pages 1-24, February. [Downloadable!] (restricted)
  4. Andrew B. Abel, 1985. "Inventories, Stock-Outs, and Production Smoothing," NBER Working Papers 1563, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Ramey, Valerie A, 1989. "Inventories as Factors of Production and Economic Fluctuations," American Economic Review, American Economic Association, vol. 79(3), pages 338-54, June. [Downloadable!] (restricted)
  6. Cuthbertson, Keith & Gasparro, David, 1993. "The Determinants of Manufacturing Inventories in the UK," Economic Journal, Royal Economic Society, vol. 103(421), pages 1479-92, November. [Downloadable!] (restricted)
  7. Naish, Howard F, 1994. "Production Smoothing in the Linear Quadratic Inventory Model," Economic Journal, Royal Economic Society, vol. 104(425), pages 864-75, July. [Downloadable!] (restricted)
  8. Jeffrey A. Miron & Stephen P. Zeldes, . "Seasonality, Cost Shocks and the Production Smoothing Model of Inventories," Rodney L. White Center for Financial Research Working Papers 01-87, Wharton School Rodney L. White Center for Financial Research.
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  9. Zeldes, Stephen P, 1989. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 275-98, May. [Downloadable!] (restricted)
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  10. Bental, Benjamin & Eden, Benjamin, 1993. "Inventories in a Competitive Environment," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 863-86, October. [Downloadable!] (restricted)
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  11. Krane, Spencer D, 1994. "The Distinction between Inventory Holding and Stockout Costs: Implications for Target Inventories, Asymmetric Adjustment, and the Effect of Aggregation on Production Smoothing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 117-36, February. [Downloadable!] (restricted)
  12. Darling, Paul & Lovell, Michael C, 1971. "Inventories, Production Smoothing, and the Flexible Accelerator," The Quarterly Journal of Economics, MIT Press, vol. 85(2), pages 357-62, May. [Downloadable!] (restricted)
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  14. Blinder, Alan S & Maccini, Louis J, 1991. "Taking Stock: A Critical Assessment of Recent Research on Inventories," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 73-96, Winter. [Downloadable!] (restricted)
  15. Irvine, F Owen, Jr, 1981. "Retail Inventory Investment and the Cost of Capital," American Economic Review, American Economic Association, vol. 71(4), pages 633-48, September. [Downloadable!] (restricted)
  16. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January. [Downloadable!] (restricted)
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  17. Mosser, Patricia C, 1991. "Trade Inventories and (S, s)," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1267-86, November. [Downloadable!] (restricted)
  18. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-48, September. [Downloadable!] (restricted)
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  19. Eichenbaum, Martin S., 1984. "Rational expectations and the smoothing properties of inventories of finished goods," Journal of Monetary Economics, Elsevier, vol. 14(1), pages 71-96, July. [Downloadable!] (restricted)
  20. Kahn, James A, 1987. "Inventories and the Volatility of Production," American Economic Review, American Economic Association, vol. 77(4), pages 667-79, September. [Downloadable!] (restricted)
  21. Blinder, Alan S, 1982. "Inventories and Sticky Prices: More on the Microfoundations of Macroeconomics," American Economic Review, American Economic Association, vol. 72(3), pages 334-48, June. [Downloadable!] (restricted)
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  22. Ramey, Valerie A, 1991. "Nonconvex Costs and the Behavior of Inventories," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 306-34, April. [Downloadable!] (restricted)
  23. Eichenbaum, Martin, 1989. "Some Empirical Evidence on the Production Level and Production Cost Smoothing Models of Inventory Investment," American Economic Review, American Economic Association, vol. 79(4), pages 853-64, September. [Downloadable!] (restricted)
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  24. Fafchamps, Marcel, 1992. "Solidarity Networks in Preindustrial Societies: Rational Peasants with a Moral Economy," Economic Development and Cultural Change, University of Chicago Press, vol. 41(1), pages 147-74, October.
  25. West, Kenneth D, 1986. "A Variance Bounds Test of the Linear Quadratic Inventory Model," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 374-401, April. [Downloadable!] (restricted)
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  26. Caplin, Andrew S, 1985. "The Variability of Aggregate Demand with (S, s) Inventory Policies," Econometrica, Econometric Society, vol. 53(6), pages 1395-1409, November. [Downloadable!] (restricted)
  27. Ghali, Moheb, 1974. "Inventories, Production Smoothing, and the Accelerator: Some Empirical Evidence," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 149-57, February. [Downloadable!] (restricted)
  28. Milne, Alistair, 1994. "The Production Smoothing Model of Inventories Revisited," Economic Journal, Royal Economic Society, vol. 104(423), pages 399-407, March. [Downloadable!] (restricted)
  29. Tsiang, S C, 1969. "The Precautionary Demand for Money: An Inventory Theoretical Analysis," Journal of Political Economy, University of Chicago Press, vol. 77(1), pages 99-117, Jan./Feb.. [Downloadable!] (restricted)
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  1. Guasch, J. Luis & Kogan, Joseph, 2001. "Inventories in developing countries : levels and determinants - a red flag for competitiveness and growth," Policy Research Working Paper Series 2552, The World Bank. [Downloadable!]
  2. Arun Khanna, 2004. "Corporate Investments, Liquidity and Bank Financing: Empirical Evidence from an Emerging Market," William Davidson Institute Working Papers Series 2004-649, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  3. Paul Collier & Jan Willem Gunning, 1999. "Why Has Africa Grown Slowly?," Journal of Economic Perspectives, American Economic Association, vol. 13(3), pages 3-22, Summer. [Downloadable!] (restricted)
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