Manufacturing Sector and Trade Liberalization in Ethiopia
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Date
2002-06
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Addis Ababa University
Abstract
Analysis of the operation of the manufacturing sector in connection with trade liberalization
is important. It helps to see what impacts (positive or adverse) has happened following the
change in trade regime and envisages what action to take in the future. Review of trade
related policy measures and assessment of the extent of liberalization are made using some
indicators. Both econometric and descriptive techniques are also applied to investigate the
operation of the manufacturing sector and the association between measures of productivity
and some indicators of liberalization.
The results indicate that manufacturing output, value added, capital expenditure and sales
have increased after the reform when compared with the pre reform situation. Share of
manufacturing export, however, depicted a declining trend after 1995/96. There is also an
increase in the number of firms though manufacturing employment has not shown significant
changes between the two periods. The increase in output that observed after the reform is
mainly attributed to the performances during the initial periods of the trade reform than being
the whole period phenomena.
Only a minor increase in productivity has been observed in the post reform period. Increased
competition across domestic firms and fall in parallel market premium are found to affect the
productivity of the manufacturing sector positively, while the effect of change in relative
prices (measured by ratio of effective exchange rates) is not significant. Size of the different
sector also has an implication on efficiency.
The observed results, in general, imply that strengthening domestic competition by
encouraging entry and liberalizing the foreign exchange market with accompanied trade
policy adjustment has impacts on the performance of the manufacturing sector. Emphasizing
the role of prices alone is not, however, sufficient to bring the intended changes in
productivity.
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Economics