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 BINDOUMOU
Catholic University of Central Africa
University of Yaounde II
CAMEROON
AFRICA
CONTENT
Motivation
Objectives
Methodology approach
Data
Presentation and Analysis of main results
Conclusion
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I-MOTIVATION
Cameroon
1-An emerging country by 2035
Newly industrialized country
2-Cameroon has just ratified the
Economic Partnership
Agreements with the European
Union
Increasing Manufacturing
production
Manufacturing production
should increase from 23 to
24% of GDP.
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Increasing Export of
manufactured products to
detriment of raw materials.
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I-MOTIVATION(2)
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)
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I-MOTIVATION(2)
Increasing production capacity:
Investment and Employment
Boosting manufacturing production: an imperative
Adjustment costs
Inputs demand
follows a dynamic process
Gradually adjustment of production capacity
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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
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To develop an optimal supply
model: assess adjustement costs
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III-METHODOLOGY APPROACH
Dynamic duality
Epstein(1981)
Intertemporal value
function
Hamilton-Jacobi Equation
Envelope theorem
Non-linear simoultanous
Equations model
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Linear independant Equations
model
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IV- DATA
Statistics and Tax returns of firms
Annual Surveys on the Industry
Economic and Financial Studies of Firms
Over the Periode: 1995-2013
24 manufacturing sectors
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.
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V-PRESENTATION AND ANALYSIS OF
RESULTS
Correlation ratio: 88.95
 Adjustment matrix
 -0.14120 -0.81586 
M 
a -0.81586 -0.52096 


 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.
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V-PRESENTATION AND ANALYSIS OF
RESULTS(2)
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)
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V-PRESENTATION AND ANALYSIS OF
RESULTS(3)
Results on adjustment costs
1-Capital adjustment costs
CAP  173521.7 1  0.983511 capp  1. 241922 cadr
it (217011.22) (0.0421250)
it (0.021021)
it
 0.652023 pcappit
(0.005112)
 0.142122 salcit  0.101622 saloit  0.361342 penerit
(0.001012)
(0.090142)
(0.052182)
2
R  0.7101
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VI-PRESENTATION AND ANALYSIS OF
RESULTS(4)
2-Skilled labour adjustment costs
CAC  312002.091  1. 201210 capp  1.309294 cadr
it (130263.52) (0.130015)
it  0.091400 
it
 0.452175 pcappit
 0.005220 
 0.610325 salcit +0.130239 saloit +0.432839 penerit
 0.007012 
 0.91221
 0.102218 
2
R  80,32%
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VI-PRESENTATION AND ANALYSIS OF
RESULTS(5)
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.
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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.
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VI-CONCLUSION
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.
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VI-CONCLUSION(2)
2-Recommendations
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.
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THANK YOU
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