EXPLORING FIRM DYNAMICS: THE CASE OF SMALL-SCALE MANUFACTURING IN AFRICA

This paper examines the dynamics of small-scale manufacturing enterprises in Africa. In order to understand the evolution of individual firms within the industrialization process, intertemporal firm level data is necessary.Several new insights on African enterprise dynamics emerge from the data. The vast majority of new firms are micro enterprises, which, as per capita income grows, appear increasingly in larger localities. Closure rates are highest for micro enterprises, and lowest for the largest firms. Moreover, the likelihood of closure is highest in the initial three to four years of a firms' existence, after which a firm has a substantially higher chance of survival. In terms of firm expansion, relatively few African micro enterprises graduate through the size structure, rather most remain micro firms. Similarly, the majority of modern small and medium enterprises do not emerge from the large pool of micro enterprises, but originate as larger firms. Future studies of firm dynamics framed by an understanding of the economic and policy environment in which firms evolve.