CONSORTIUM POUR LA RECHERCHE ECONOMIQUE ET SOCIALE (CRES)

AND

UNITED NATIONS UNIVERSITY (UNU-MERIT)

2nd International Conference on Sustainable Development in Africa

INTERNAL ADJUSTMENT COSTS AND DYNAMIC INPUTS DEMAND: EVIDENCE IN CAMEROONIAN

MANUFACTURING INDUSTRY

By

Martial BINDOUMOUCatholic University of Central Africa

University of Yaounde II

CAMEROON

AFRICA

Motivation

Objectives

Methodology approach

Data

Presentation and Analysis of main

results

Conclusion

CONTENT

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I-MOTIVATION

Cameroon 1-An emerging country by 2035Newly industrialized country 2-Cameroon has just ratified the Economic Partnership Agreements with the European Union

Increasing Manufacturing

productionManufacturing production should increase from 23 to

24% of GDP.

Increasing Export of manufactured products

to detriment of raw materials.

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Cameroonian industrial policies

Imports substitution Trade liberalization: attract

best quality of inputs

Low economic performance

Insufficient production capacity standing at 64% (NSI,

2010)

Vulnerability to external schock( CACIA , 2006)

I-MOTIVATION(2)

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Boosting manufacturing production: an imperative

Increasing production capacity: Investment and Employment

I-MOTIVATION(2)

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Adjustment costs Inputs demand follows a dynamic process

Gradually adjustment of production capacity

II-OBJECTIVES OF THE STUDY

To examine the dynamics of investment and

employment in the Cameroonian manufacturing

sector.

To develop a dynamic system

of the inputs demand: analyze

the dynamics of productive

structure

To develop an optimal supply

model: assess adjustement costs

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III-METHODOLOGY APPROACHDynamic duality

Epstein(1981)

Intertemporal value function

Hamilton-Jacobi Equation

Envelope theorem

Non-linear simoultanous Equations model

Linear independant Equations model

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IV- DATA

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Food , other food manufacturing, beverage and liquor, tobacco, textile , wearing apparels, leather, footwear , wood-working, furniture and fixture, paper edition, printing and publishing industry, industrial chemical, other chemical products, rubber, plastics industry, glass and glass products, Metal products, Machinery except electrical, Materials construction and metallurgy, Manufacture of machinery, electrical and electronic equipment , transport equipment and other manufacturing industries.

Statistics and Tax returns of firms

Annual Surveys on the Industry

Economic and Financial Studies of Firms

Over the Periode: 1995-201324 manufacturing sectors

V-PRESENTATION AND ANALYSIS OF RESULTS

Correlation ratio: 88.95

Adjustment matrix

In the Cameroonian manufacturing sector, productive

capital and the number of skilled workers are effectively

quasi- fixed factors

a- Capital adjustment on their long-run equilibrium level:7

and a half years.

b-Skilled workers adjustment: roughly a year and half. Martial Bindoumou 8

-0.14120 -0.81586

-0.81586 -0.52096Ma

V-PRESENTATION AND ANALYSIS OF RESULTS(2)

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In Cameroon's manufacturing sector ,firms renew slowly their

equipment and machinery compared with the number of skilled

workers.

Interrelated adjustment rate of capital and labor on the adjustment

matrix show that capital and labor are adjusted simoultanouly: change

in production capacity in terms of equipment and machinery by cameroonian

manufacturing firms requires the modification in the skilled labor level.

It is more efficient for these firms to hire skilled labor at the same time

they increase the level of productive capital .

Own adjustment costs are more important than the crossed

adjustment costs: equilbrum solution or the optimal level of quasi- fixed

inputs vector is then a saddle point, according to Fairise(1993)

Results on adjustment costs

1-Capital adjustment costs

V-PRESENTATION AND ANALYSIS OF RESULTS(3)

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173521.7 1 0.983511 1. 241922(217011.22) (0.0421250) (0.021021)

0.652023(0.005112)0.142122 salc 0.101622 salo 0.361342it(0.001012) (0.090142) (0.052182)

2 0.7101

CAP capp cadrit it it

pcappit

penerit it

R

2-Skilled labour adjustment costs

VI-PRESENTATION AND ANALYSIS OF RESULTS(4)

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312002.091 1. 201210 1.309294(130263.52) (0.130015) 0.091400

0.4521750.005220

0.610325 +0.130239 +0.4328390.007012 0.91221 0.102218

2 80,32%

CAC capp cadrit it it

pcappit

salc salo penerit it it

R

VI-PRESENTATION AND ANALYSIS OF RESULTS(5)

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Annual production losses due to the adjustment of capital

factor to its desired level are FCFA 52 250 191.4on average :

about 18.75% of the average value of production per manufacturing

branch .

Skilled workers adjustment at its optimal level annually cost

for each manufacturing branch over FCFA 89 145 450: 32.00% of its

average production value per manufacturing branch in Cameroon.

VI-PRESENTATION AND ANALYSIS OF RESULTS(7)

Adjustment of the skilled workers is more expensive than the

adjustment of physical capital:

Relative burden of the tax law in Cameroon

Decreasing in the investment undertaken by firms in the

industrial sector in general and manufacturing sector in particular

since 2004

Level of physical capital remains underutilized

Regulations on hiring and firing in the labor market in Cameroon

are still heavy.Martial Bindoumou 13

VI-CONCLUSION

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1-Contributions

Link between investment and hiring behaviours: taking

into account of this relationship by manufacturing firm

ensures its competitivity and stability

The decision by the policymakers to implement fiscal

or employment policy rapidly rather than gradually

depends on the nature and magnitude of adjustment

costs that firms face. If these costs are very high ,

policymakers will gradually put in place this policy

otherwise , they will implement it in a single period.

VI-CONCLUSION(2)

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Pursuing professional training policy in order face the hight

adjustment costs.

Further relax the laws on the labor market, in particular

employment protection measures.

Further ease the tax legislation in order to promote import

of higher quality of inputs which incorporate advanced

technologies.

2-Recommendations

THANK YOU

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