Network Proximity and Business Practices in African Manufacturing

We document empirical patterns of correlation in the adoption of technological innovation and contractual practices among manufacturing firms in Ethiopia and Sudan.  The analysis is based on network data indicating whether any two firms in our sample do business with each other, whether they buy inputs from a common supplier, and whether they sell output to a common client.  We only find limited support for the commonly held idea that firms that are more proximate in a network sense are more likely to adopt similar practices.  For certain practices, adoption decisions appear instead to be local strategic substitutes: if one firm in a given location is using a certain practice, others nearby are less likely to do so.  These results appear out of tune with the policy discussion of how the economic performance of African's manufacturing sector can be improved.