Inventory Decisions Under Political Violence

Abstract

We estimate the effect of violent political conflicts on firm inventory purchase decisions using monthly data of 431 clients of a multinational beverage supplier in Mozambique. Firms decrease inventory purchases by up to 19% in response to conflicts occurring within a 10km radius. Small firms show a stronger decline compared to large firms, and are more likely to stop their purchases temporarily, and permanently. We find consistent heterogeneous effects across firm size using annual data on manufacturing firms. Small firms are disproportionately affected by political violence, which can exacerbate already existing differences to large firms in developing economies.

Keywords: Inventory Purchases, Working Capital Investment, Political Violence, Uncertainty, Developing Countries

JEL Classification: D22, D74, G31, I32, O12