Market Institutions in Sub-Saharan Africa: Theory and Evidence

(ProQuest Information and Learning: . denotes text missing in the original.) Market Institutions in Sub-Saharan Africa: Theory and Evidence. By Marcel Fafchamps. Comparative Institutional Analysis Series. Cambridge, Mass. : The MIT Press, 2004. Pp. xx, 521. $50.00. In his preface, Marcel Fafchamps suggests that the material in his book will be useful to researchers, students and teachers of economics, and to policy practitioners to help bring about economic growth and income distribution in Africa. Fortunately, he does not claim it will be useful or accessible to practitioners of business. Whether they are running businesses in Africa, or are involved in the global marketplace and wanting to develop a base of operations in Africa, business people will not find much of immediate use in Fafchamps' book. This does not negate the value of the book, however. Fafchamps's collaboration with the Regional Program for Enterprise Development run by the Africa Division of the World Bank has proved invaluable in allowing him to conduct, in-depth analyses on enterprise finance. It uses rigorous analytical methodology, moving from exploratory case studies in three African countries (Zimbabwe, Kenya, and Ghana) through to powerful regression techniques based on survey data drawn from hundreds of panel firms, suppliers, and clients in nine sub-Saharan countries. As such, Market Institutions in SubSaharan Africa will be valuable as a reference book to scholars of African economics. From a policy perspective, some interesting details emerge. Theories in developmental economics hold that entrepreneurs will not reach their full potential if they are prevented from joining the mainstream of commerce. In its simplest form, this book deals with access to credit: who has access to credit, and to whom is it denied? In unearthing the answer, Fafchamps focuses largely on three countries: Zimbabwe, Kenya, and to a lesser extent, Ghana. The panel data are drawn also from Burundi, Cameroon, Cote d'Ivoire, Ethiopia, Tanzania, and Zambia. He acknowledges the difficulty in developing a questionnaire that can work in many different countries, that can be applied to both large and small firms, and that can be understood by respondents with little or no formal education. Thus, from the outset the reader is warned of "fuzziness" in the data. The work in Zimbabwe was probably facilitated by the fact that the data are drawn from the heavily "European" business class. Unfortunately, the data were gathered in 1994, several years before President Mugabe's "land reform" policies. It is interesting to speculate on how different the analysis might have been had the work been carried out more recently. The order of chapters in the book is less than ideal. More than halfway through the book, Fafchamps addresses what he calls his main theme: communities and markets. These are the entrepreneurial networks around which the text revolves. Fafchamps sets up rigorous econometric models to test network building, contract enforcement, trust, and information sharing. Lastly, he tackles discrimination and ethnicity within those networks. This is the most fascinating-and explosive-aspect of this extensive oeuvre. "When politicians become convinced that markets only serve the interests of a small prosperous minority, they are prompt to respond . by market repression and direct government intervention. " (p. 304). In order to investigate this issue, Fafchamps defines five ethnic categories: African (black), European (white), Asian (South Asian), Mideastern (Syria and Lebanon), and other (mixed ancestry). This definition is race-based although such distinctions do not allow for ethnic strife that occurs within the same racial group. (Language is a possible ethnic marker, as exemplified by the Shona and Ndebele, two Zimbabwe ethnic groups that are linguistically different. On the other hand, Hutus and Tutsis share the same language but consider themselves to be separate ethnic groups. …