Contract Flexibility and Dispute Resolution in African Manufacturing

Arne Bigsten (), Paul Collier, Marcel Fafchamps (), Stefan Dercon (), B. Gauthier, Jan Willem Gunning (), A. Oduro, Remco Oostendorp, C. Patillo, M. Sederbom, Francis John Teal and A. Zeufack

Working Papers Series from Centre for the Study of African Economies, University of Oxford

Abstract: This paper examines the contractual practices of African manufacturing firms using survey data collected in Burundi, Cameroon, Cote d'Ivoire, Kenya, Zambia, and Zimbabwe. Descriptive statistics and econometric results are presented. They show that contractual flexibility is pervasive and that relational contracting is the norm between manufacturers, their suppliers, and their clients. The existence of long-term relations between firms helps them deal with contract non-performance through negotiation. Confrontational methods such as lawyers and courts are used only by large firms and when negotiations fail. Whenever confrontation can be avoided, business is resumed. Of the six studied countries, incidence of breach and the use of lawyers and courts are highest in Zimbabwe which is also the country with legal institutions that best support business. Our favoured interpretation is that good legal institutions incite firms to take more chances, thereby encouraging trade and leading to more cases of breach and more recourse to courts and lawyers. A high frequency of contract non-compliance should thus not be interpreted as a sign of imperfect legal institutions.

Keywords: CONTRACTS; MANUFACTURING INDUSTRIES (search for similar items in EconPapers)
JEL-codes: K12 L40 L43 (search for similar items in EconPapers)
Date: 1999
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