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Investment in Africa's Manufacturing Sector: A Four Country Panel Data Analysis

Author

Listed:
  • Arne Bigsten
  • Paul Collier
  • Stefan Dercon
  • Bernard Gauthier
  • Jan Willem Gunning
  • Anders Isaksson
  • Abena Oduro
  • Remco Oostendorp
  • Cathy Pattilo
  • Mans Soderbom
  • Michel Sylvain
  • Francis Teal
  • Albert Zeufack

Abstract

Firm level data for the manufacturing sector in Africa, presented in this paper, shows very low levels of investment. The importance of profit effects on investment is investigated using a flexible accelerator, a specification based on the Euler equation and a simple generalisation of these specificiations. There are controls for firm fixed effects. It is shown that the profit effect is very similar for both the accelerator and Euler equation specifications. A comparison with other studies shows that, for small firms, the effect is much smaller in Africa than for other countries. Reasons for the relative insensitivity of investment to profits in African firms are suggested. For the most general specification tested there are no significant differences in the size of the profit effect across the four countries in the study.

Suggested Citation

  • Arne Bigsten & Paul Collier & Stefan Dercon & Bernard Gauthier & Jan Willem Gunning & Anders Isaksson & Abena Oduro & Remco Oostendorp & Cathy Pattilo & Mans Soderbom & Michel Sylvain & Francis Teal &, 1999. "Investment in Africa's Manufacturing Sector: A Four Country Panel Data Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(4), pages 489-512, November.
    • Handle: RePEc:bla:obuest:v:61:y:1999:i:4:p:489-512
    DOI: 10.1111/1468-0084.00140
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    Cited by:

    1. Måns Söderbom & Francis Teal & Anthony Wambugu, 2002. "Does firm size really affect earnings?," CSAE Working Paper Series 2002-08, Centre for the Study of African Economies, University of Oxford.
    2. Fioretti, Guido, 2006. "Recognising investment opportunities at the onset of recoveries," Research in Economics, Elsevier, vol. 60(2), pages 69-84, June.
    3. Reinikka, Ritva & Svensson, Jakob, 2002. "Coping with poor public capital," Journal of Development Economics, Elsevier, vol. 69(1), pages 51-69, October.
    4. Guido Fioretti, 2002. "The Investment Acceleration Principle Revisited by Means of a Neural Net," Computational Economics 0207002, University Library of Munich, Germany.
    5. Twine, Edgar E. & Kiiza, Barnabas & Bashaasha, Bernard, 2015. "The Flexible Accelerator Model of Investment: An Application to Ugandan Tea- Processing Firms," African Journal of Agricultural and Resource Economics, African Association of Agricultural Economists, vol. 10(1), pages 1-15, March.
    6. Varouj A. Aivazian & Eric Santor, 2008. "Financial constraints and investment: assessing the impact of a World Bank credit program on small and medium enterprises in Sri Lanka," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 41(2), pages 475-500, May.
    7. Shiferaw, Admasu & Bedi, Arjun S., 2009. "The Dynamics of Job Creation and Job Destruction: Is Sub-Saharan Africa Different?," IZA Discussion Papers 4623, Institute of Labor Economics (IZA).
    8. 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.
    9. Louise Grenier & Andrew McKay & Oliver Morrissey, 1998. "Determinants of Exports and Investment of Manufacturing Firms in Tanzania," Discussion Papers 98/5, University of Nottingham, CREDIT.
    10. Schündeln, Matthias, 2005. "Modeling Firm Dynamics to Identify the Cost of Financing Constraints in Ghanaian Manufacturing," Proceedings of the German Development Economics Conference, Kiel 2005 29, Verein für Socialpolitik, Research Committee Development Economics.
    11. Jonathan D. Quartey, 2021. "Addressing the Missing Link for Sustainable African Continental Free Trade: Lessons from Ghana’s Manufacturing Industry," Asian Development Policy Review, Asian Economic and Social Society, vol. 9(1), pages 1-23, March.
    12. Hallward-Driemeier, Mary, 2001. "Firm-level survey provides data on Asia's corporate crisis and recovery," Policy Research Working Paper Series 2515, The World Bank.
    13. K. Farla, 2014. "Determinants of firms' investment behaviour: a multilevel approach," Applied Economics, Taylor & Francis Journals, vol. 46(34), pages 4231-4241, December.
    14. Karine Chapelle & Patrick Plane, 2005. "Productive Efficiency In The Ivorian Manufacturing Sector: An Exploratory Study Using A Data Envelopment Analysis Approach," The Developing Economies, Institute of Developing Economies, vol. 43(4), pages 450-471, December.
    15. Reinikka, Ritva & Svensson, Jakob, 1999. "How inadequate provision of public infrastructure and services affects private investment," Policy Research Working Paper Series 2262, The World Bank.
    16. Sambulo Malumisa, 2013. "Comparative Analysis of the Determinants and Behaviour of Investment Demand between South Africa and Zimbabwe," Journal of Economics and Behavioral Studies, AMH International, vol. 5(6), pages 385-397.
    17. W.A. Naudéa & R. Oostendorp & P.A.E. Serumaga‐Zake, 2002. "South African Manufacturing In An African Context," South African Journal of Economics, Economic Society of South Africa, vol. 70(8), pages 1247-1272, December.
    18. Giorgio Calcagnini & Germana Giombini & Enrico Saltari, 2009. "Firms? Investment in the Presence of Labor and Financial Market Imperfections," Working Papers 0901, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2009.
    19. Dirk Willem te Velde & Oliver Morrissey, 2003. "Spatial Inequality for Manufacturing Wages in Five African Countries," WIDER Working Paper Series DP2003-66, World Institute for Development Economic Research (UNU-WIDER).
    20. Reinikka, Ritva & Svensson, Jakob, 1999. "Confronting competition - investment response and constraints in Uganda," Policy Research Working Paper Series 2242, The World Bank.
    21. 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.
    22. Anupam Das, 2012. "Remittance Behavior of Migrants and its Macroeconomic Effects in Four Developing Countries," International Journal of Applied Behavioral Economics (IJABE), IGI Global, vol. 1(1), pages 41-59, January.
    23. Akay, Gokhan H. & Yuksel, Mutlu, 2009. "Capital-Skill Complementarity: Evidence from Manufacturing Industries in Ghana," IZA Discussion Papers 4674, Institute of Labor Economics (IZA).
    24. Léonce Ndikumana, 2001. "Financial Markets and Economic Development in Africa," Working Papers wp17, Political Economy Research Institute, University of Massachusetts at Amherst.
    25. Varouj Aivazian & Dipak Mazumdar & Eric Santor, 2003. "Financial Constraints and Investment: Assessing the Impact of a World Bank Loan Program on Small and Medium-Sized Enterprises in Sri Lanka," Staff Working Papers 03-37, Bank of Canada.

    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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