Essays on the Path to Industrialization in Ethiopia

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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.



Kaldor’s growth hypothesis, Manufacturing growth, Political Economy, Sectoral linkage