The determinants of survival among African manufacturing firms

Since the 1980s, both Ghana and Tanzania have introduced substantial reforms. Both have undertaken a number of policy and regulatory changes to liberalize a previously highly protected and public-sector-dominated economy. Measures that have influenced the industrial sector include the introduction of a market-based foreign exchange system, liberalization of trade policy, privatization of state-owned enterprises, and fiscal policy reform. Kenya did not adopt the severe control regimes that have characterized both Ghana and Tanzania for long periods of time. Data from the mid- and late 1990s for all three countries are analyzed to determine how manufacturing firms perform in three relatively open market environments in sub-Saharan Africa. Results suggest that selection on efficiency, or creative destruction" occurs among the relatively large firms but not among small firms. This observation is attributed to the fact that exit value depends on total factor productivity (TFP) and that this dependence is weaker among large firms. Evidence indicates that being relatively productive does not prevent firms from going out of business in the subsequent period if they are small."