Network Proximity and Business Practices in African Manufacturing

Patterns of correlation in innovation and contractual practices among manufacturing firms in Ethiopia and Sudan are documented. Network data that indicate whether any two firms in the utilized sample do business with each other, buy inputs from a common supplier, or sell output to a common client are used for the analysis. Only limited support is found for the commonly held idea that firms that are more proximate in a network sense are more likely to adopt similar practices. Indeed, for certain practices, adoption decisions appear to be local strategic substitutes: if one firm in a given location uses a certain practice, nearby firms are less likely to do so. These results suggest that the diffusion of technology and new business practices may play a more limited role in spurring growth in Africa's manufacturing sector than is often assumed in the present policy discussion.