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Inventories and risk in African manufacturing

Author

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  • Marcel Fafchamps
  • Jan Willem Gunning
  • Remco Oostendorp

Abstract

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.

Suggested Citation

  • Marcel Fafchamps & Jan Willem Gunning & Remco Oostendorp, 1999. "Inventories and risk in African manufacturing," CSAE Working Paper Series 1999-19, Centre for the Study of African Economies, University of Oxford.
  • Handle: RePEc:csa:wpaper:1999-19
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    Cited by:

    1. Fafchamps Marcel, 2002. "Spontaneous Market Emergence," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 2(1), pages 1-37, June.
    2. 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.
    3. 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).
    4. 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.
    5. 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.
    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. Guasch, J. Luis & Kogan, Joseph, 2003. "Just-in-case inventories - a cross-country analysis," Policy Research Working Paper Series 3012, The World Bank.
    8. Fisman, Raymond, 2001. "Trade Credit and Productive Efficiency in Developing Countries," World Development, Elsevier, vol. 29(2), pages 311-321, February.
    9. 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.
    10. 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.
    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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