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Inventories and Risk in African Manufacturing

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

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.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 110 (2000)
Issue (Month): 466 (October)
Pages: 861-93

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Handle: RePEc:ecj:econjl:v:110:y:2000:i:466:p:861-93
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