Essays on the Path to Industrialization in Ethiopia
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Date
2020-06
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A.A.U
Abstract
This study explores the overall performance of the manufacturing sector in Ethiopia over
time. It addresses two fundamental research questions: What is the long run impact of
manufacturing growth on the Ethiopian economy? and what have been the major
explaining factors of Ethiopian manufacturing performance overtime? It uses the
endogenous growth theory, specifically the Kaldor growth hypothesis; the heterodox
economic approach with a focus on institutions, balanced and unbalanced theories of
growth and the public policy endogenous growth theory as theoretical formulations to
empirically investigate the research questions. The research covers five independent
articles addressing the two major questions using different dataset and estimation
approaches. For the time series data, it uses the vector error correction model (VECM),
Granger causality, the impulse response function and the autoregressive distributive lag
(ARDL) parametric estimation approaches. For cross-sectional data, a non-parametric
social accounting matrix (SAM) multiplier analysis is computed. The research also uses
industry level panel data for exploring the link between energy use and labor productivity
in the manufacturing sector with a dynamic panel estimation approach.
The findings show that there is a long run positive relationship between manufacturing and
economic growth validating Kaldor’s growth hypothesis in Ethiopia. The empirical
analysis of the political economy of industrialization in Ethiopia shows that institutions,
especially political institutions, have been one major setback limiting the performance of
the manufacturing sector in the country. This shows that the heterodox economic approach
with its institutional economic perspective is another framework to better understand the
industry and economic structure of Ethiopia. The sectoral linkage analysis shows a weak
direct and total linkage of multi-faceted industries with other sectors. Results, suggests that
the agriculture-based industry is relevant for Ethiopia with higher output, GDP, demand
and income multiplier coefficients. The research further validates the public policy
endogenous growth theory in Ethiopia at the industry level, with a significant effect of
public policy instruments on Ethiopian industry growth in the long run. The last paper
confirms that energy has been other major factor affecting manufacturing productivity in
Ethiopia. Yet, the research validates different theories empirically taking Ethiopia as a case
study. In a nutshell, the study 5implies a focus should be given to the political economy
environment, agriculture-based industries, public policy instruments and efficient energy
use to induce industrialization in Ethiopia.
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Keywords
Kaldor’s growth hypothesis, Manufacturing growth, Political Economy, Sectoral linkage