Economic Growth and Development in Ethiopia

This paper evaluates the impact of adopting improved agricultural technologies (high yielding varieties, HYVs) on rural household welfare measured by consumption expenditure and poverty indices in two regions of rural Ethiopia (Amhara and Tigray) and 51 rural villages based on data drawn from the World Bank (2010). It applies two potential program evaluation techniques (propensity score matching, PSM, and endogenous switching regression, ESR). The analysis reveals that adoption of improved agricultural technologies has a robust, significant and positive impact on per capita consumption expenditure and a negative impact on the poverty status of households. The overall average gain in per capita consumption expenditure ranges from Birr 582.67 to Birr 606.69 annually. The estimated impact on poverty reduction as measured by the headcount index ranges from 6.7 to 8.3% points. The findings also indicate that this reduces the depth and severity of poverty. The estimated effect on reducing the depth of poverty is in the range of 0.5–0.6% points and it decreases inequality (severity) of poverty by about 0.1% points. This suggests the need for continued and broad public and private investments in agriculture research to address vital development challenges and the need for policy support for improving extension efforts and access to seeds and market outlets that encourage adoption of improved agricultural technologies.

The present study identifies and investigates the importance of supply- and demand-side factors of household food security by doing a logistic regression analysis of data collected through a survey of 240 sample households in Arsi zone, Lode Hetosa district. Rather than using per capita income we use consumption expenditure per adult equivalent (AEU) to measure household food security levels. Out of the 240 sample rural households, 53.75 and 46.25% were found to be food secure and food insecure respectively. The empirical results show that out of the five supply-side factors hypothesized to have an impact on household food security status, four—education level, landholding, technology adoption and access to credit service—had a significant relationship with household food security while from the eight demand-side factors, five—farm experience, participation in off-farm activities, annual farm income, market distance and livestock holdings—were associated with food security levels. Depending on the relative effects of the two sides on the probability of food security, supply-side factors are more important and powerful than demand-side factors in affecting and determining household food security. This implies that policy interventions focused on supply side factors need to get priority attention.

This study investigates the dynamics and determinants of inflation in Ethiopia over the period 1975–2015 using annual data from the National Bank of Ethiopia (NBE), the Central Statistical Agency (CSA) and the Ministry of Finance and Economic Cooperation (MOFED). The study uses the ARDL inflation model by synthesizing monetarist and structuralist views of the determinants of inflation in the country. The findings show that the major determinants of dynamics of inflation in Ethiopia are both monetary sector and structural factors. Specifically, the ARDL model shows that monetary determinants of inflation are money supply and the real interest rate. Inflation in Ethiopia both in the short and long run is not only a monetary phenomenon (such as money expansion via credit and money printing; government spending and the real interest rate) but also the result of structural factors like shocks to the real sector (mainly agricultural GDP as the agriculture sector dominates the country’s GDP). This study’s policy implications are that the Government of Ethiopia needs to follow conservative fiscal and monetary policies. It is also important to enhance economic growth as higher economic growth reduces inflationary pressures.

This study examines the effects of fiscal policy—particularly government expenditure and taxation—on economic growth in Ethiopia using the ARDL modeling approach. It finds that both in the short and long run, the effect of better human capital formation, increased availability of the economy’s capital stock and labor force had a significant positive effect on the growth of the economy. On the fiscal side, a good performance in the collection of indirect tax revenue and increased productive government consumption had a significant positive effect on the growth of the economy both in the short and long run.

The main objective of this study is examining the impact of government sectoral expenditure on economic growth in Ethiopia over the period 1975–2015. It focuses on sectoral expenditures on economic, social, general services and other services sectors. The major contributions of this study are studying expenditure components in line with the current categorization using up-to-date data. The study uses secondary data collected from the Ministry of Finance and Economic Cooperation of Ethiopia and the National Bank of Ethiopia. It uses both descriptive and econometrics data analysis methods as also the Augmented Dickey Fuller, the Johansen cointegration test and the vector error correction model to test for stationarity and cointegration and to analyze the long run and the short run dynamics of the model. The empirical results show that general services expenditure had a negative and significant effect on economic growth.

Applying logit regression models, we present the factors that determine the tax compliance attitude of individual smallholder farmers in Ethiopia. The evidence presented in this article is based on the 5th Afrobarometer Survey (2014). We find some similarities and some differences with earlier studies in factors that are correlated with the tax compliance attitude of smallholder farmers in Ethiopia. We argue that tax compliance is a function of individual smallholder farmers and related variables and confirm that people who are happier with open administration arrangements have a tax compliant attitude. Those farmers who perceive that their ethnic group thinks that they have been treated unfairly are less likely to have a tax compliant attitude. Smallholder farmers’ tax knowledge is also significantly correlated with a tax compliant attitude in Ethiopia. We identify a taxpayer’s satisfaction with local government officials as another determinant of tax compliance. These findings are robust to different econometric specifications.

Traditional one-dimensional income or consumption expenditure-based poverty measures provide a biased and incomplete guide to addressing poverty. Recent research trends are shifting from one-dimensional to multidimensional poverty analyses. This paper uses Alkire and Foster (Understandings and misunderstandings of multidimensional 793 poverty measurement. Springer Science+Business Media, Berlin, 2011) method of multidimensional poverty analysis using data from four rounds of the Ethiopian Demographic and Health Survey. Our study concludes that multidimensional poverty is high in Ethiopia in general and in rural Ethiopia in particular. In Ethiopia, multidimensional poverty has been decreasing moderately over time but still a large proportion of its population is under the multidimensional poverty line. Living standards contribute the most (more than 85%) to multidimensional poverty while education contributes about 14% and health contributes the least (less than 1%). Among the indicators that this paper uses in multidimensional poverty, there is high deprivation in sanitation, cooking fuel, floor and electricity. Further, sanitation and cooking fuel deprivations are increasing but education deprivation and school attendance deprivation have been decreasing over time. Level of education, having a bank account and the number of working age family members reduce multidimensional poverty but the number of children under 5-years and dependent family members (dependency ratio) increase Ethiopian households’ multidimensional poverty.

Previous studies on returns to education in Ethiopia have been fraught with endogeneity. Moreover, the non-linearity of returns to education has not been established on a national scale. Hence, this study measures the marginal private returns to education in Ethiopia using the latest National Labor Force Survey (NLFS) in 2013. It also examines the presence of non-linearity in the returns to education, particularly if sheepskin effects are evident at different levels of education. To address these objectives the study uses a Heckman selection model on adaptations of a Mincerian type earnings function. It finds that the average marginal returns to a year of schooling is 14.43%. The average marginal returns to a year of experience is 0.5%. The study also finds that schooling has increasing marginal returns whereas experience has decreasing marginal returns. Non-linearity in the returns to education is found to be a character of the returns to education profile in Ethiopia. A sheepskin effect of the returns to education is also established at different levels of education in Ethiopia. The highest rate of return to education is for basic education (completing Grade 4). However, the biggest dip in the rate of returns occurs for general primary education (completing Grade 8). These findings suggest that investing in education is still a profitable venture for private citizens as it exhibits increasing marginal returns.

This study identifies the incidence of high-growth firms (HGFs) in Ethiopia with their corresponding business obstacles and growth determinants. The research is based on data from the World Bank’s Enterprise Survey dataset (World Bank Enterprise Survey. The World Bank, Washington, DC, 2015). The survey covered 848 firms distributed over six major regions in the country—Addis Ababa, Oromia, Amhara, SNNP, Tigray and Dire Dawa. The analysis was done using OLS and QR. HGFs were concentrated in the capital city and in the services sector while medium-sized firms dominated the HGFs. Like non-HGFs, access to finance was the biggest perceived obstacle for HGFs followed by tax rates as compared to the informal sector’s activities for non-HGFs. Region-wise, access to finance was the key problem only for firms operating in Addis Ababa and Tigray while the informal sector dominated in Oromia region. In Amhara region, corruption was the most significant obstacle. The econometric estimation results show that firm growth was negatively related to firm size. Growth were associated positively with firms’ products and process innovations, resources and firms website. The research fails to show any significant difference among firms’ growth based on gender of ownership, competition, capacity utilization and nationality of ownership. The heterogeneity in business obstacles across regions and performance of firms can be taken as important lessons for policy interventions.

This study identifies the effects of a firm’s age on its performance as measured by labor productivity and total value of sales using survey based panel data of large and medium scale manufacturing firms in Ethiopia. The analysis is based on 6370 firms and 10,231 firm-years during 2010–15 distributed all over the nation with Addis Ababa, Oromia, SNNP, Amhara and Tigray regions hosting over 90% of these firms. The results of the fixed-effects (unbalanced) panel data estimation technique fail to show a statistically significant relationship between a firm’s age and its performance irrespective of the choice of the dependent variable and different model specifications. The coefficient of the average marginal effect of age is negative, but insignificant, for both measures of a firm’s performance. The study also shows that the effect of a firm’s size on its performance depends on the choice of the dependent variable. Firm size is predominantly associated with lower labor productivity but higher sales value. When it comes to the role of other control variables capital intensity and wage expenditure have a positive and significant effect on a firm’s performance and the result is invariant to the method of estimation. The effect of a change in the gender composition of the owner on a firm’s performance is found to be negative and significant for the OLS regression but insignificant for the fixed-effects model. Finally, the role of region of operation on a firm’s performance is significant and positive only in the labor productivity regression. The lack of empirical support for the effect of a firm’s age on its performance shows that the ‘learning by doing’ affect is weak and improving this could be a possible option for reducing the high rates of firms’ entries and exits observed in the survey.