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Fafchamps, M., Gunning, J., and Oostendorp, R. (2000). Inventories and risk in African manufacturing. Economic Journal, 110:861-893.


  • Journal
    Economic Journal

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.