NBVC is substituted by the replacement cost of machinery and equipment, which, in the surveys, is only available for a single year. We thus recursively estimate the missing values of the NBVC from the information on the replacement cost of and the net investment in machinery and equipment by using the permanent inventory method, according to which the capital stock at moment _t_ is given by _Kit=K it-1(1δ)+ Iit_ . By inverting this formula we can obtain the value of the capital at moment _t-1_ as _Kit-1=(K it - Iit)/(1-δ)_ where _Kit_ is approximated with the replacement cost of machinery and equipment, Iit is the net investment in machinery and equipment, and _δ_ is the depreciation rate of the machinery and equipment.<sup>8</sup> In this paper we focus on the manufacturing sector, and while classifying the establishments by their international standard of industrial classification (ISIC) code, we end up with establishments from the following eight sectors: (a) food and beverages; (b) textiles and apparels; (c) chemicals, rubber, and plastics; (d) paper, printing, and publishing; (e) machinery and equipment/metallic products; (f) wood and furniture; (g) nonmetallic products; and (h) other manufacturing.

# _Classification of countries by geographical area_

For the classification of countries by groups used in the regression analysis, we take into account the following facts: (a) the surveys provide different information on PF variables and on IC and C variables; (b) the surveys were carried out in different years during the period 2002–6; (c) the quality of the data varies across surveys; and (d) not all the surveys provide panel data information (recall data) for the PF variables. Thus, we end up with two types of country databases. For those countries with a large enough number of observations available for regression analysis (see column 6 of table 3.1) and with panel data information for the PF variables (for more than one year), we carry out the analysis country by country. For the countries in which surveys were collected in 2006 (which only offer one year of information for PF variables) and the number of firms surveyed was lower than in the previous surveys, we follow the estimation strategy of pooling the information according to the similarity of geographical and economic factors—thus gaining efficiency in the parametrical estimation of the IC parameters (with more observations in the regressions) at the cost of having common IC parameters for some countries.

We end up with two pools of 2006 countries: (a) ECOWAS countries, such as Mauritania, Cameroon, Niger, and Burkina Faso; and (b) SADC countries, such as Botswana, Namibia, and Swaziland. Finally, since Eritrea has only 179 observations available, we consider this country as a special region of Ethiopia and carry out a joint analysis of the two, constituting the third pool of countries considered in the analysis.

> 8 The depreciation rate used is 15 percent, a standard percentage commonly applied in other works. Other percentages were also used in order to check robustness. Alternatively, to check whether the results were robust for other ways of constructing the NBVC, we used the next formula Kit-1=K it(1-ΔIit), where Kit is approximated by the replacement cost and ΔIit=(Iit-Iit-1)/Iit1<sup>is the rate of growth of the net investment in machinery and equipment. In both cases the main results were maintained.</sup>

16