Resource Allocation Across Industrial Sectors, Growth, Poverty, and Income Inequality in Ethiopia: A Macro-Micro Approach

33 Pages Posted: 17 Sep 2019

See all articles by Zerayehu Sime Eshete

Zerayehu Sime Eshete

Independent

Solomon Tsehay Feleke

Addis Ababa University

Alemnesh Tadesse

Addis Ababa University

Asmayit Tekeste

Ethiopian Shipping Lines

Lulit Mitik Beyene

Institute for Economic and Social Development Research

Date Written: September 16, 2019

Abstract

Ethiopia has endorsed a Growth and Transformation Plan intended to transform the manufacturing sector through the construction of industrial parks that target priority industries such as textiles and garments, leather and leather products, sugar, cement, metals and engineering, chemicals, pharmaceuticals, and agro-processing. Using the 2010 Social Accounting Matrix (SAM), a dynamic CGE model, and data from the 2009-2010 survey of Household Income and Expenditure, we examined the effect on economic growth, poverty, and income inequality in Ethiopia when resources were allocated to selected industrial activities. We simulated the effect of financing industrial parks through borrowing and then repaying loans through a five-percent tax on non-priority industrial sectors. The results showed that Ethiopia’s Gross Domestic Product increased slightly across time. Both production and exports of priority industries operating inside the industrial parks and household income increased while production and exports in similar sectors outside the industrial park decreased. The production of non-priority industrial and service activities showed mixed results, and poverty and income inequality were reduced by a small amount. Transforming the manufacturing sector and stimulating both economic growth and poverty reduction requires attention to attracting direct foreign investment.

Keywords: Dynamic CGE, Industrial Park, Crowding Out, FDI, Poverty

JEL Classification: O4, 041

Suggested Citation

Eshete, Zerayehu Sime and Tsehay Feleke, Solomon and Tadesse, Alemnesh and Tekeste, Asmayit and Beyene, Lulit Mitik, Resource Allocation Across Industrial Sectors, Growth, Poverty, and Income Inequality in Ethiopia: A Macro-Micro Approach (September 16, 2019). Partnership for Economic Policy Working Paper No. 2019-16. Available at SSRN: https://ssrn.com/abstract=3454859 or http://dx.doi.org/10.2139/ssrn.3454859

Zerayehu Sime Eshete (Contact Author)

Independent ( email )

No Address Available

Solomon Tsehay Feleke

Addis Ababa University ( email )

King George VI St
Addis Ababa, 1000
Ethiopia

Alemnesh Tadesse

Addis Ababa University ( email )

King George VI St
Addis Ababa, 1000
Ethiopia

Asmayit Tekeste

Ethiopian Shipping Lines ( email )

Addis Ababa
Ethiopia

Lulit Mitik Beyene

Institute for Economic and Social Development Research ( email )

Addis Ababa
Ethiopia

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