Investment in Africa's manufacturing sector: A four country panel data analysis

Firm level data for the manufacturing sector in Africa, presented in this p aper, shows very low levels of investment. The importance of profit effects on in vestment is investigated using a flexible accelerator, a specificati on based on the Euler equation and a simple generalisation of these specifi ciations. There are controls for firm fixed effects. It is shown that the p rofit effect is very similar for both the accelerator and Euler equation sp ecifications. A comparison with other studies shows that, for small firms, the effect is much smaller in Africa than for other countries. Reasons for the relative insensitivity of investment to profits in African firms are su ggested. For the most general specification tested there are no significant differences in the size of the profit effect across the four countries in the study.