Firm Growth Dynamics in Africa: Evidence from the Manufacturing Sector in Ghana

Abstract

This research seeks to identify the main factors that propel the growth of micro and small firms in Ghana and how these growth-enhancing factors in turn foster the size graduation or transformation and therefore growth dynamics of such micro and small firms. By making use of data on 250 firms, this study estimated a growth model using the two stage least squares and a multivariate probit estimation procedure to highlight the spurts that propel firm growth and graduation in Ghana. Generally this study observes that the distribution of firms within Ghana.s manufacturing sector had changed overtime from a bimodal to a normal distribution. The results obtained on firm size and age is generally in line with firm growth through efficiency learning theory. Other control variables important in explaining and predicting firm growth and graduation include formality status, friendly institutional environment and labour laws, management style, the existence social and business networks and credit constraints. From a policy perspective, the results call for the need to provide adequate support to younger and smaller firms to grow and survive, the need to develop efficient institutions that are indispensable to the functioning of input and output markets, and the need to minimize preferential treatment accorded very large firms.