Industrialization on a Knife's Edge: Productivity, Labor Costs and the Rise of Manufacturing in Ethiopia

35 Pages Posted: 14 Aug 2019 Last revised: 15 Aug 2019

Date Written: August 13, 2019

Abstract

The latest push for industrialization in Ethiopia has attracted much academic and public interest. This paper assesses Ethiopia's competitiveness and attractiveness as an investment destination by comparing domestic productivity and input costs to a sample of manufacturing exporting countries. The paper documents that, in a comparison with Kenya, India or Vietnam, the labor cost advantage of Ethiopian firms is more than offset by low productivity. However, Ethiopia appears competitive when compared to Bangladesh. Capital, firm size, or sectoral composition do not explain the low productivity of the Ethiopian manufacturing sector. Ethiopian firms, however, have worse management, particularly in the area of labor management. The paper concludes by discussing the potential for labor interventions to increase productivity and create the condition for further industrialization.

Keywords: Food & Beverage Industry, General Manufacturing, Textiles, Apparel & Leather Industry, Pulp & Paper Industry, Common Carriers Industry, Construction Industry, Business Cycles and Stabilization Policies, Plastics & Rubber Industry, Skills Development and Labor Force Training, Labor Markets, Private Sector Economics, Macroeconomics and Economic Growth, Economic Policy, Institutions and Governance

Suggested Citation

Caria, Stefano, Industrialization on a Knife's Edge: Productivity, Labor Costs and the Rise of Manufacturing in Ethiopia (August 13, 2019). World Bank Policy Research Working Paper No. 8980. Available at SSRN: https://ssrn.com/abstract=3437097

Stefano Caria (Contact Author)

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

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