Firm inventory behavior in east Africa

Atsushi Iimi, Richard Martin Humphrey and Sevara Melibaeva

No 7280, Policy Research Working Paper Series from The World Bank

Abstract: Firms normally keep certain inventories, including raw materials, work-in-progress, and finished goods, to operate seamlessly and not to miss possible business opportunities. But inventory is costly, and the optimal firm inventory differs depending on various economic conditions, including trade and transport costs. The paper examines firm inventory behavior in East Africa, in which transport connectivity, especially to the ports, is considered as one of the major business constraints. Using firm-level data from Burundi, Kenya, Rwanda, Tanzania, and Uganda, it is shown that transport connectivity significantly affects firm inventory behavior. In particular, road density and transport costs to the port are important to determine the optimal inventory level. With more roads in a city and/or cheaper access to the port, firms would hold smaller inventories.

Keywords: Transport Economics Policy&Planning; E-Business; Economic Theory&Research; Debt Markets; Rural Roads&Transport (search for similar items in EconPapers)
Date: 2015-05-29
New Economics Papers: this item is included in nep-bec and nep-tre
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