The Effect ofImproved Productivity of the Manufacturing Industry on the Ethiopian Economy: A Computable General Equilibrium Analysis
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Date
2012-06
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A.A.U
Abstract
Ethiopia's manufacturing industry is at the onset of development though there are recent
upsurges in the number of firm s. This study examines the effect of productivity
improvement of the manufacturing sector on the macro economy, sectoral output, factor
and household income and welfare of households. In order to investigate this impact, the
study utilized the recursive dynamic computable general equilibrium (CGE) model. The
recently updated 2005/06 Ethiopian SAM was used to calibrate the CGE framework.
Three policy simulations of high, medium and low TFP growth rates were simulated on
textile, leather, agro processing, and non-agro processing and overall manufacturing
activities.
The study demonstrated that the manufacturing sector is a key driver of economic growth
in particular; the findings suggest that productivity increase in textile, agro processing,
and non-agro processing and overall manufacturing sector largely increases real GDP and
sectoral outputs. Moreover, both rural and urban households are well-off in all the policy
si mulations. However, increasing the TFP of the leather sector alone showed no
significant change on the macro variables like; real GDP, absorption, private
consumption and investment. It also resulted in welfare loss to all households except rural
poor. The study further extends its recommendation for Ethiopia to develop a strong
industrial policy aimed towards promoting both agro and non-agro processing industries
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Keywords
Manufacturing Industry, Equilibrium Analysis