The Determinants of Structural Transformation in Africa: Evidence From Ethiopia
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Date
2019-06
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Addis Ababa University
Abstract
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.
Description
Keywords
Ethiopia, Structural Transformation, ARDL, Bound test, Trend, Determinants.