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The Determinants of Survival among African Manufacturing Firms

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  • Soderbom, Mans
  • Teal, Francis
  • Harding, Alan

Abstract

Recent reforms in many African economies of their trading and exchange rate regimes have eliminated much of the protection that previously limited competition. Despite these reforms, African manufacturing firms remain unsuccessful, particularly in international export markets. In this article we focus on the role of total factor productivity (TFP) in determining whether or not firms can survive in the subsequent period. We use a pooled panel data set of firms in Ghana, Kenya, and Tanzania that spans a period of 5 years. We find that productivity influences subsequent firm survival among large, but not small, firms. We investigate whether this result can be explained by differences in risk or the persistence of TFP. We find no evidence that this is the case. The result may be driven by covariance between the unobserved outside option and the value in remaining in existence that makes optimal exiting for small firms largely independent of productivity in the previous period.

Suggested Citation

  • Soderbom, Mans & Teal, Francis & Harding, Alan, 2006. "The Determinants of Survival among African Manufacturing Firms," Economic Development and Cultural Change, University of Chicago Press, vol. 54(3), pages 533-555, April.
  • Handle: RePEc:ucp:ecdecc:y:2006:v:54:i:3:p:533-55
    DOI: 10.1086/500030
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    4. Pierre Blanchard & Jean-Pierre Huiban & Claude Mathieu, 2012. "The determinants of firm exit in the French food industries," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement, INRA Department of Economics, vol. 93(2), pages 193-212.
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    9. Pierre Blanchard & Jean-Pierre Huiban & Claude Mathieu, 2012. "The determinants of firm exit in the French food industries," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement, INRA Department of Economics, vol. 93(2), pages 193-212.
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    20. Blanchard, Pierre & Huiban, Jean-Pierre & Mathieu, Claude, 2011. "Productivity, sunk costs and firm exit in the French food industry," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114526, European Association of Agricultural Economists.
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