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 reduce inventory purchases by up to 19% in response to conflicts occurring within a 10 km radius. This is observed exclusively among small firms, which reduce their purchases by 28%–32% compared to larger firms. Small firms are also more likely to temporarily or permanently halt their purchases. However, conditional on survival, the effect is short-lived. Our results underscore the disproportionate impact of political violence on small firms, potentially widening the gap between small and large businesses in developing economies.