The Determinants of Structural Transformation in Africa: Evidence From Ethiopia

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Addis Ababa University


The purpose of this study is to investigate the determinants of structural transformation in Ethiopia. The study relied on data obtained and constructed from various sources and comprised seven variables, covering the period 1981 to 2015. The study also analyzed trends of structural transformation in Africa for the same period. In this study, an Autoregressive Distributive Lag bound test method was employed to co-integration in order to investigate the long run relationship and Error Correction Model between structural transformation (dependent variable) and the dependent variables (urbanization, trade openness, share of agricultural value added, GDP per capita, network index, and gross capital formation). The result reveals that there is a stable long run relationship between structural transformation and its determinants. In the long run; gross capital formation and gdp per capita are positively associated and significantly affected structural transformation; whereas agricultural value added is significantly affected structural transformation though the relationship is inverse with negative expected sign. Similarly, the short run coefficients show that gross capital formation, gdp per capita, urbanization and network index are positively associated with structural transformation. Like the long run, the share of agriculture is negatively associated with structural transformation. The trend analysis results for Africa shows share of agricultural in gdp fell from 61.6 percent in 1981 to 49.8 percent in 2010. What is striking, however, is that manufacturing did not expand during this period. Finally, the error correction coefficient is highly significant and the correct negative sign and imply a very high speed of adjustment to equilibrium and the ECM confirms the existence of a stable long-un relationship. The policy implication is that investments in gross capital formation, network infrastructure, declining investment in agricultural development and urbanization are crucial to accelerate structural transformation. Key Words: Ethiopia, Structural Transformation, ARDL, Bound test, Trend, Determinants.



Ethiopia, Structural Transformation, ARDL, Bound test, Trend, Determinants.