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Endnotes
1. Productivity measures how efficiently firms produce their products and services using one unit of factor input, either as labor or capital. Value-added per work and value-added per a unit of capital are used to show labor and capital productivity of the firms. Export intensity is measured as the share of export sales revenue in the total sales revenue and indicates how well firms perform in terms of exports. For both labor and capital productivity, productivity for services has to be interpreted carefully because services require substantive amounts of nontangible material inputs that are not captured by materials in the sense of raw and intermediate materials for manufactured products.
2. In the survey, the capital value is measured in terms of replacement cost of capital firms. See Tybout (2000) for the survey of the literature on this topic. Total factor productivity is in fact found to be higher among medium firms while lower among small and large firms.
5. State-owned enterprises are excluded here due to the small number of firms that provided revenue and cost information in the survey. See Moran (1998).
7. The technology employed is not as current as in the wholly owned foreign counterpart, partly due to fear of having the technology misappropriated.
Concerns about quality control inhibit integration of local production into the parent’s global networks. See Moran (1998).
8. Based on the Brazil data in the s, Evans (1979) found supporting evidence for foreign investors choosing joint ventures as their optimal strategy.
Using Ghanaian firm-level data, Acquaah (2005) found that the enhancement in manufacturing efficiency and quality improvement in privately owned enterprises could be traced to the activities of foreign-domestic joint venture enterprises. However, as market competition increases, wholly domestic- owned enterprises emphasize manufacturing efficiency and quality improvement more than foreign-domestic joint venture enterprises. For example, Broadman (2005) provides a comprehensive analysis of how domestic competition effectively promotes integration of East European countries and the former Soviet Union. The existing studies on the role of competition in the African private sector are often conducted for individual countries. For example, Azam et al. (2001) for
Côte d’Ivore, Hajim (2001) for Tanzania, Reinikka and Svensson (1999) for
Uganda, and Frazer (2005) for Ghana.
11. Another measurement of intensity of domestic competition is average domestic market share by individual firms. In this case, domestic competition is more intensive if average market share is smaller. See table A in annex A. For the remainder of the chapter, numbers of competitors in the WBAATI
survey data always refers to the numbers of competitors in reference to national markets of the four African countries the survey covered.
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S NEW ECONOMIC FRONTIER. Note that local competitors includes firms owned by foreign nationals but operating in Africa as opposed to foreign import competitors who are physically located outside of the market and compete with local firms through imports. Fafchamps 1999.
15. Formal policy-based barriers as well as nonpolicy institutional barriers would have different impacts on firm turnovers depending on the size of the firms.
Nonpolicy institutional barriers such as ethnic networks would have a stronger impact on smaller-sized and informal sector firms. There are several studies that have examined firm turnover patterns in Sub-Saharan African countries.
They are consistently reporting higher turnover rates among smaller firms.
Based on the data from firm-level surveys conducted in the s through the
Regional Program on Enterprise Development (RPED), Harding, Soderböm and Teal (2004) report that more than 40 percent of firms existed in Tanzania and Kenya between 1993–94 and 1998–99 and 20 percent in the case of
Ghana. For both Ghana and Kenya, they found that the exit rate decreases with the firm size. Using similar data for Ghana, Frazer (2005) also found larger firms are less likely to exit. The finding that smaller firms have high turnover rates is consistent with the data from the WBATTI survey. Entry can occur through several channels. Each channel would have a different impact on domestic market concentration. Entry can affect market structure not only by altering the relative market shares of sales, but also the number of producers thus, the effects of foreign business entry on domestic market structure and competition may vary. Entry through imports as well as greenfield investment decrease market concentration in host countries. However, mergers would increase domestic market concentration (Broadman
2005).
17. Although it is not as clear as the sales side, a similar pattern exists on the purchase side.
18. This linkage is clearly shown in the case of East Europe and the former Soviet
Union per Broadman (2005).
19. Because the data on competitors are not measured in a perfectly objective manner, the numbers of competitors from the same home countries can be biased upward, particularly among foreign-owned firms. However, the table shows that, comparing across different origins of competitors (rather than comparing across different firm nationalities, local competitors and competitors from neighboring African countries are the leading origins of competitors for any nationality group. Thus, potential upward bias should not change the basic pattern in any significant manner. Even with the bias being corrected, it appears that Chinese and Indian import competition is felt more by Chinese and Indian firms operating in Africa than by indigenous African firms. Recently, Helpman, Melitz, and Yeaple (2004) both theoretically and empirically showed that more efficient firms would choose FDI to serve a foreign market while less-efficient firms serve the market by exporting their products.
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“
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ASIAN TRADE AND INVESTMENT FLOWS 21. Macroeconomic data show that African countries in general are high-cost countries relative to income and productivity. In addition, several recent studies based on firm-level data show that manufacturers in Africa also experience high transaction costs at the micro level. For example, Eifert, Gelb, and
Ramachandran (2005) show how high indirect costs reduce the productivity and competitiveness of manufacturers across Africa. These costs are reducing productivity for the region’s manufacturers. Indeed, the combination of high regulatory costs, unsecured land property rights, inadequate and high-cost infrastructure, unfair competition from well-connected companies, ineffective judiciary systems, policy uncertainty, and corruption makes the cost of doing business in Africa 20-40 percent above that for other developing regions,
according to the World Bank Doing Business Indicators. See Eifert, Gelb, and Ramachandran (2005).
23. Using industry-level data, Clarke and Wallsten (2006) found a strong effect of the Internet in promoting North-South trade. Using firm-level ICA data of
African manufacturing firms, Yoshino (2006) found that the use of the Internet has much more significant effect for firms to export outside of Africa than to export within Africa.
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