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Inventories and risk in African manufacturing

  • Marcel Fafchamps
  • Jan Willem Gunning
  • Remco Oostendorp

This paper analyses the effects of risk on the holding of inventories and liquid assets by manufacturing firms. 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 of stocks 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. By contrast, we find that firms facing more inter-annual market risk hold less inventories. This suggests that African manufacturers prefer adapting to long-term market fluctuations as they materialize rather than building up inventories. This interpretation is consistent with the finding that high market risk firms also have a low capacity utilization rate.

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File URL: http://www.csae.ox.ac.uk/workingpapers/pdfs/9919text.pdf
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Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 1999-19.

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Date of creation: 1999
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Handle: RePEc:csa:wpaper:1999-19
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