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Firm Heterogeneity and Market Selection in Sub-Saharan Africa: Does It Spur Industrial Progress?

  • Shiferaw, Admasu

This article investigates the processes of market selection and industry dynamics in a sub-Saharan Africa context. Using census-based longitudinal data, it examines the distribution of productivity within an industry to determine whether patterns of firm entry, exit, and survival are driven by underlying efficiency differences. It also estimates the contributions to industry-level productivity growth of producer turnover and the reallocation of resources from less efficient producers to more efficient ones. The article shows that markets in sub-Saharan Africa, as represented by Ethiopia, are at least as strong as those in other regions in selecting efficient firms. Tolerance of inefficient firms also declines with the degree of exposure to international competition. While reallocation of resources played a positive and significant role for industry-level productivity growth, it only managed to offset the declining trend in intrafirm productivity. The article concludes that although markets have played the expected disciplinary role, long-term industrial growth requires more than functional markets, particularly in addressing firm-level innovation.

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Article provided by University of Chicago Press in its journal Economic Development and Cultural Change.

Volume (Year): 55 (2007)
Issue (Month): 2 (January)
Pages: 393-423

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Handle: RePEc:ucp:ecdecc:y:2007:v:55:i:2:p:393-423
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  1. James R. Tybout, 2000. "Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 11-44, March.
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  10. Dani Rodrik, 1998. "Trade Policy and Economic Performance in Sub-Saharan Africa," NBER Working Papers 6562, National Bureau of Economic Research, Inc.
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  13. S.A. Lippman & R.P. Rumelt, 1982. "Uncertain Imitability: An Analysis of Interfirm Differences in Efficiency under Competition," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 418-438, Autumn.
  14. Tybout, James R. & Westbrook, M. Daniel, 1995. "Trade liberalization and the dimensions of efficiency change in Mexican manufacturing industries," Journal of International Economics, Elsevier, vol. 39(1-2), pages 53-78, August.
  15. Dixit, A., 1988. "Entry And Exit Decisions Under Uncertainty," Papers 91, Princeton, Department of Economics - Financial Research Center.
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