Survival of Private Sector Manufacturing Establishments in Africa: The Role of Productivity and Ownership

Abstract

This paper analyzes the risk of exit for privately-owned manufacturing establishments in a small African economy. It shows that changes in the structure of ownership following an economic reform have important implications on establishment survival.The risk of exit is lower for establishments that belong to multi-unit firms as compared to single-unit establishments suggesting the presence of information and risk sharing mechanisms within a group. Although female-owned businesses tend to be smaller in size, they have better chances of survival than male-owned establishments. The probability of exit also declines significantly in establishment size and productivity. JEL Classification: D21; L11

Patterns of business creation, survival and growth: Evidence from Africa

“…During the time period under consideration, we find that firm age upon exit is close to 7 years on average; firms in the retail/wholesale trade sector have the lowest average age upon exit of 6.4 years, while service sector firms exhibit the highest average age at exit of 7.2 years. For comparison purposes, we find the age upon exit of firms in Cote d'Ivoire is similar to that found by Shiferaw's (2009) study on firms in Ethiopia's manufacturing sector. The majority of firms (90%) are located in the Abidjan region, which is the commercial and economic capital of the country, comprising some 50% of the country's non-agricultural population and generating 70% of all municipal revenue during the period.…”

“…Supporting these results, Shiferaw (2009) finds that the probability of firm exit is lower in expanding industries and that productive firms are less likely to exit among Ethiopian manufacturing firms. Finally, the literature examines the impact of macroeconomic and other shocks on private sector behavior.…”

“…The authors find that the annual rate of new MSE start-ups averages over 20%, and that the vast majority of new firms were one-person establishments. Shiferaw (2007Shiferaw ( , 2009 and Bedi and Shiferaw (2009) are notable exceptions to the majority of African firm-level studies that depend on survey data and instead utilize manufacturing census data. However, in their studies of Ethiopian establishments the authors still face stock sampling (survivorship bias) problems and are limited to the manufacturing sector.…”

“…Unlike previous studies, with the exception of Shiferaw (2007Shiferaw ( , 2009) and Bedi and Shiferaw (2009), we rely on census-based panel data, which allows for better tracking of firm entry and exit. However, we go beyond existing studies since we do not face a stock sampling problem (survivorship bias) and we use a long panel that allows firms sufficient time to follow their natural lifecycle and therefore minimize right-censoring.…”

“…13 Related work in Colombia and Ethiopia includes only the manufacturing sector. For Colombia see, for example,Eslava et al (2009Eslava et al ( , 2010; for Ethiopia see, for example,Shiferaw (2007Shiferaw ( , 2009, andBedi and Shiferaw (2009).…”