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Inventories and Risk in African Manufacturing

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  • Fafchamps, Marcel
  • Gunning, Jan Willem
  • Oostendorp, Remco

Abstract

Using a panel data set for Zimbabwe which includes firm-specific measures of contractual risk, we show that contractual risk has a major effect on the holding input stocks and, to a lesser extent, the constitution of cash reserves. This is consistent with inventories being a hedge against stockout risk. By contrast, firms facing more inter-annual market risk hold less inventories. This suggests that African manufacturers prefer adapting to long-term market fluctuations as they materialise rather than building up inventories. This interpretation is consistent with the finding that high market risk firms also have a low capacity utilisation rate.

Suggested Citation

  • Fafchamps, Marcel & Gunning, Jan Willem & Oostendorp, Remco, 2000. "Inventories and Risk in African Manufacturing," Economic Journal, Royal Economic Society, vol. 110(466), pages 861-893, October.
  • Handle: RePEc:ecj:econjl:v:110:y:2000:i:466:p:861-93
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    Cited by:

    1. Fisman, Raymond, 2001. "Trade Credit and Productive Efficiency in Developing Countries," World Development, Elsevier, vol. 29(2), pages 311-321, February.
    2. Fafchamps Marcel, 2002. "Spontaneous Market Emergence," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 2(1), pages 1-37, June.
    3. Quattri, Maria A. & Ozanne, Adam & Wang, Xioabing & Hall, Alastair R., 2011. "On The Role Of The Brokerage Institution In The Development Of Ethiopian Agricultural Markets," 85th Annual Conference, April 18-20, 2011, Warwick University, Coventry, UK 108941, Agricultural Economics Society.
    4. 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.
    5. 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.
    6. Deininger, Klaus & Jin, Songqing & Sur, Mona, 2007. "Sri Lanka's Rural Non-Farm Economy: Removing Constraints to Pro-Poor Growth," World Development, Elsevier, vol. 35(12), pages 2056-2078, December.
    7. Sundaram-Stukel, Reka & Deininger, Klaus W. & Jin, Songqing, 2006. "Fostering growth of the rural non-farm sector in Africa: The Case of Tanzania," 2006 Annual meeting, July 23-26, Long Beach, CA 21165, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    8. Rune Jansen Hagen, 2002. "Marginalisation in the Context of Globalisation: Why Is Africa so Poor?," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 28, pages 147-179.
    9. 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.
    10. Guasch, J. Luis & Kogan, Joseph, 2003. "Just-in-case inventories - a cross-country analysis," Policy Research Working Paper Series 3012, The World Bank.
    11. Quattri, Maria & Ozanne, Adam & Beyene, Seneshaw Tamru, 2012. "The brokerage institution and the development of agricultural markets: New evidence from Ethiopia," ESSP working papers 36, International Food Policy Research Institute (IFPRI).

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