CONSORTIUM POUR LA RECHERCHE ECONOMIQUE ET SOCIALE (CRES) AND UNITED NATIONS UNIVERSITY (UNU-MERIT) 2 nd 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

 Motivation  Objectives  Methodology approach  Data  Presentation and Analysis of main results  Conclusion CONTENT Martial Bindoumou 1

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. Increasing Export of manufactured products to detriment of raw materials. Martial Bindoumou 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) I-MOTIVATION(2) Martial Bindoumou 3

Boosting manufacturing production: an imperative Increasing production capacity: Investment and Employment I-MOTIVATION(2) Martial Bindoumou 4 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 Martial Bindoumou 5

III-METHODOLOGY APPROACH Dynamic duality Epstein(1981) Intertemporal value function Hamilton-Jacobi Equation Envelope theorem Non-linear simoultanous Equations model Linear independant Equations model Martial Bindoumou 6

IV- DATA Martial Bindoumou 7 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 : manufacturing sectors

V-PRESENTATION AND ANALYSIS OF RESULTS  Correlation ratio:  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

V-PRESENTATION AND ANALYSIS OF RESULTS(2) Martial Bindoumou 9  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) Martial Bindoumou 10

2-Skilled labour adjustment costs VI-PRESENTATION AND ANALYSIS OF RESULTS(4) Martial Bindoumou 11

VI-PRESENTATION AND ANALYSIS OF RESULTS(5) Martial Bindoumou 12  Annual production losses due to the adjustment of capital factor to its desired level are FCFA on 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 : 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 Martial Bindoumou 14 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) Martial Bindoumou 15  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 Martial Bindoumou 16