Essays on Firms’ Growth and their Survival in Ethiopia: The Role of Firm Experience

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Firms’ growth, survival, and distribution has been a key research subject in many countries and more so in developing countries because of the limited number of firms and scant evidence on their performance and where they are located in these countries. The nexus between ageing, performance, and survival is important for sustaining the promising and fast-growing Ethiopian economy. This thesis addresses the link between firms’ experience, growth, survival, and distribution using medium and large-scale manufacturing firms in the country. The major data source is the Central Statistical Agency (CSA) of Ethiopia. Data for Chapter 4 comes from the World Bank’s Enterprise Survey database (World Bank, 2015). The thesis applies multiple estimation techniques including system GMM, quantile regression, complementary loglog regression, the Kaplan-Meier survival analysis plots, probit estimation, Heckman selection model, and the fixed effects models. The results of the pooled OLS estimation are reported for a comparison. The studies included in the thesis have some key findings. The findings of the first essay (Chapter 2) on firms’ experience and performance show that experience is positively associated with labor productivity both in the short and in the long run. Firm experience was measured using a composite index developed for this purpose. The sensitivity analysis, however, shows that the positive effect of experience disappears when we estimate the relationship using true panel data. From the elements used in the development of the index, only cohort age and wage rate have a significant positive effect on a firm’s performance. Firms in Ethiopia rely heavily on imported inputs and how this relates to their performance is investigated in the second essay (Chapter 3). Using import intensity as a proxy for firm experience, we found a statistically significant negative effect of import intensity on the risk of exit using a probit estimation. Imported input-intensive firms show a better likelihood of survival using the complementary log-log estimation. Overall, the results from the Kaplan-Meier plots, the complementary log-log, and probit estimations show that importing inputs from abroad is associated with lower risks of a firm’s exiting. In the third essay (Chapter 4), the focus of the analysis shifts to the distribution and determinants of high-growth firms (HGFs). Firm growth distribution and HGFs’ special features is another important aspect of this thesis. The over population of high growth firms in Addis Ababa and Oromia and their unique business challenges are discussed in the third essay. The fourth essay (Chapter 5) examines how ageing is related to a firm’s performance. It complements the first paper which uses pseudo panel data. In Essay 4, we use a true panel of firms and use age as an indicator as opposed to an index in the first essay. After controlling for sample selection using Heckman’s selection model, we observe that there is a no relationship between growth and a firm’s age but there is a convex relationship between size and a firm’s growth rate. Small firms tend to grow faster but there is no significant difference in labor productivity values among firms based on age and size



Ageing, High growth firms, Firm growth, Pseudo panel and system GMM JEL Classification Codes: D22; L11; L25