Remco Oostendorp

Do African Manufacturing Firms Learn from Exporting

We use firm-level panel data for the manufacturing sector in four African countries to investigate whether exporting impacts on efficiency, and whether efficient firms self-select into the export market. Based on simultaneous estimation of a production function and an export regression, our preferred results indicate significant efficiency gains from exporting, which can be interpreted as learning by exporting. We show that modelling unobserved heterogeneity by a flexible approach is important for deriving this conclusion. A policy implication of our results is that Africa would gain from orientating its manufacturing sector towards exporting.

Rates of Return on Physical and Human Capital in Africa's Manufacturing Sector

In this paper two sets of issues are addressed using panel data from the manufacturing sector of five African countries. First, how high are the returns to human relative to physical capital. Second, what is the relative importance of technology and endowments of human and physical capital in determining differences in earnings and productivity across the countries. Evidence from earnings functions shows that the private returns to both experience and education rise with the level of education. Private returns rise from 3 per cent at the primary level, to 10 per cent at the secondary level and 35 per cent for tertiary. Evidence from the production function gives lower returns on education than from the earnings function. Rates of return on physical capital exceed 20 per cent and greatly exceed the average return on human capital. Data is available on the stocks of human and physical capital across the countries. Productivity and earnings differentials are shown to be large between Cameroon and Ghana. These differences are due almost entirely to differences in physical, not human, capital endowments.

Explaining a miracle. Intensification and the transition towards sustainable small-scale agriculture in dryland Machakos and Kitui Districts, Kenya

Abstract The transition to sustainable agriculture in tropical small-scale farming has been discussed intensively since Boserup published her theory on the role of population pressure as a leading factor. Bosemps work challenged the Malthusian approach to rural transformation. Recent evidence supports the Boserup theory as applied to Machakos District, Kenya. This paper aims to establish how much of terracing is directly explained by population density increases as opposed to other district and village-level variables by using a retrospective multivariate analysis in Machakos and Kitui Districts, Kenya. The findings suggest that variables such as the distance to major urban markets and the windfall profits from the coffee boom in the late 1970s are at least as important in explaining the investment in the quality of land in Machakos and Kitui Districts.

Exports of African manufactures: macro policy and firm behaviour

Macro policy has changed the real exchange rates for African countries dramatically in the 1990s. In this paper the possible impact of macroeconomic policy on firms in the manufacturing sector is considered based on a panel survey of such firms in Cameroon. Kenya, Ghana and Zimbabwe. The data show that most large African manufacturing firms do export, but most do not specialize in exporting. An export equation is estimated both for the propensity of the firms to export and the percentage of output exported. It is shown that a stable export function can be estimated for all four countries over the three rounds of the survey. While there is no evidence that real devaluations have effected a general rise in manufactured exports there is evidence from the surveys of a rise in the percentage of output exported from the Cameroon. Reasons for the lack of a general response to macro policy are suggested. In the Cameroon, large firms did increase their propensity to export. Understanding the links between macro policy and firm performance may require an understanding of how such policies impact on different types of firms.

Inventories and risk in African manufacturing

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.

Adjustment Costs and Irreversibility as Determinants of Investment: Evidence from African Manufacturing

Abstract In this paper we investigate if the predictions of three different models of capital adjustment costs are consistent with the observed investment patterns among manufacturing firms in five African countries. We document a high frequency of zero investment episodes, which is consistent with both fixed adjustment costs and irreversibility and inconsistent with quadratic adjustment costs. We model the decision to invest using a dynamic discrete choice model and find evidence of irreversibility and not fixed costs. We finally model the investment rate as a function of the size of the capital disequilibrium. The results confirm that irreversibility is an important factor affecting the investment behaviour of African manufacturing firms. Some implications of this finding are discussed.

Measuring the Productivity from Indigenous Soil and Water Conservation Technologies with Household Fixed Effects: A Case Study of Hilly Mountainous Areas of Benin*

In this paper we examine the productivity of indigenous soil and water conservation investments in the Boukombe region in Northwest Benin, using an in-depth survey among 101 farmers on farm inputs, outputs, and SWC investments. We show that positive effects of SWC investments are only observed if one controls for household-specific constraints. We use a production function approach to relate SWC to farm output, and we control for observable and unobservable housrhold characteristics with household fixed effects. The results show that (1)there are large productivity effects of indigenous SWC investments in the Boukombe region of Benin, (2) there is a positive interaction between fertilizer use and SWC on productivity, (3) the productivity of SWC has an inverted U-shape in plot slope. Misspecification tests for omitted variable bias, endogeneity bias, and selection bias are performed and show that the results are robust.

Risk Sharing in Labour Markets

Empirical work in labour economics has focused on rent sharing as an explanation for the observed correlation in cross-sections between wages and profitability. The alternative explanation of risk sharing between workers and employers has not been tested. Using a unique panel data set for four African countries we find strong evidence of risk sharing. Workers in effect offer insurance to employers: when firms are hit by temporary shocks the effect on profits is cushioned by risk sharing with workers. Rent sharing is a symptom of an inefficient labor market. Risk sharing, however, can be seen as an efficient response to missing markets. Our evidence suggests that risk sharing accounts for a substantial part of the observed effect of shocks on wages.

On the use of cost-benefit analysis for the evaluation of farm household investments in natural resource conservation

Farm households in developing countries are generally credit constrained. This forces them to simultaneously take production and consumption decisions. In this paper, a two-period lifecycle model of the farm household is constructed and the house- holds investment response to changes in land and agricultural output prices are derived theoretically. It is shown that in the absence of credit markets household responses to exogenous price changes may differ from the predictions of cost-benefit analysis. Farm household responses are also derived for the case where price increases for land and agricultural output are accompanied by the introduction of a credit market. For this case the results show that farm household reactions are in accordance with predictions made by cost-benefit analysis. An empirical case study from Benin underscores the relevance of considering access to credit in establishing whether investments in soil conservation are beneficial to farm households.

Measuring True Sales and Underreporting with Matched Firm-Level Survey and Tax Office Data

This paper uses firm-level survey data matched with official tax records to estimate the unobserved true sales of formal firms in Mongolia. Taking into account firm-level incentives to comply with taxes and a production function technology linking unobserved true sales with observable firm-level production characteristics, we derive a multiple-indicators, multiple-causes model predicting true sales. We find that firms underreport sales to the tax office by 38.6%, but firm-level survey data also suffer from significant underreporting. Finally, we compare our approach with two alternative approaches of measuring underreporting and discuss the practical implications of the findings for firm-level analyses of underreporting.