Modeling the Dynamics of Sectoral TFP Growth in Ethiopia: Explaining Persistent Economic Debacles
This paper provides a rigorous analysis for modeling the dynamics of sectoral total factor productivity growth in Ethiopia over the period 1970 - 2010. It also attempts to estimate total factor productivity growth rate for agriculture, industry and service sector using sectoral growth accounting approach, and then examines determinants that affect sectoral productivity by employing a vector autoregressive model that incorporates exogenous variables. The study then finds that sectoral economic growth largely depends on factor accumulation instead of factor productivity. As a result of this, labour becomes the dominant source of agricultural growth while capital deepening explains the immense source of growth in industry and services over the reference period, regardless of the various political economy regimes. Total factor productivity growth, however, is negative on average across economic sectors and heavily reflects the lack of efficiency and technological change that bottlenecked economic growth. The study also finds that economy openness, imported capital goods, and service liberalization are statistically significant variable and positively influence the sectoral total factor productivity growth in agriculture, industry and service sector respectively. The study therefore recommends that the government focuses on widening economy openness in order to driving up agricultural total factor productivity, and pays more attention to importation of strategic technologies and reduces trade and service barriers associated with in order to foster industrial and service total factor productivity respectively.
Structural Change Process, Sectoral TFP, Sectoral Growth Accounting Approach, VARX Model, Zivot and Andrews Test, Stationarity Test with Structural Break, Clemete, Montanes and Reyes Test
Abdih, Y. and Joutz, F. (2005), Relating the Knowledge Production Function to Total Factor Productivity: An Endogenous Growth Puzzle, IMF Working Paper No. WP/05/74.
Abramovitz, M. (1956), Resource and Output Trends in the United States since 1870, American Economic Review, Papers and Proceedings, 46: 5-23.
Aghion, P. and Howitt, P. (1992), a Model of Growth through Creation Destruction, Journal of Econometric, Vol. 60, No. 2.PP0: 323-51
Aitken, J. and Harrison, E. (1999), Do domestic firms benefit from foreign direct investment? Evidence from Venezuela”, American Economic Review, vol. 89, pp. 605-18.
Akinlo, E. (2005), Impact of Macroeconomic Factors on Total Factor Productivity in Sub-Saharan African Countries” Research Paper No. 39 UN-WIDER
Andres, I. (2007), Determinants of Total Factor Productivity: A Literature Review, United Nation Industrial Development Organization, UNIDO
Arnold,J., Javorcik, A., and Mattoo, A. (2007), The Productivity Effects of Services Liberalization: Evidence from from the Czech Republic, WB Working Paper, No. 4109, World Bank
Aschauer D. (1989), Is public expenditure productive? Journal of Monetary Economics 23, 177-200.
Asghar A. (2007), Macro Determinants of Total Factor Productivity Growth of Agriculture in Pakistan, Department of Agricultural Economics, University of Agriculture Faisalabad
Barro, R.J. (1990), Government Spending in a Simple Model of Endogenous Growth, Journal of Political Economy, (95):103-25.
Baumol, W. (1967), Macroeconomics of unbalanced growth: The anatomy of urban crisis, American Economic Review, 57 (3), 415-426.
Benhabib, J. and Spiegel, M. (1994), The Role of Human Capital in Economic Development: Evidence from Aggregate Cross-Country Data, Journal of Monetary Economics, Vol. 34(2).
Bosworth, B., Collins S., and Virmani A. (2007), Sources of Growth in the Indian Economy. NBER Working Paper 12901
Chen, C. and Dahlman, C.J. (2004), Knowledge and Development: A Cross-Section Approach, Policy Research Working Paper, No. 3366, and Washington, DC: World Bank.
Chenery, H.B. (1960), Pattern of Industrial Growth, the American Economic Review 50 (4): 624-654
Chenery, H.B. and Taylor L. (1968), Development patterns among countries and over time, Review of Economics and Statistics 50:391-416.
Chole, E. (1992), Underdevelopment in Ethiopia, a Book published by OSSR in memorial of Eshetu’s Work, Addis Ababa, Ethiopia Oxford University Press (1958).
Clemete, J., Montanes, A., and Reyes, M. (1998), Testing for a unit root in Variables with a double change in the Mean, Economic Letters, Vol. 59.
Dollar, D. and Sokoloff k.(1990), Patterns of Productivity Growth in South Korean Manufacturing Industries, 1963-1979, Journal of Development Economics, Vol.33, pp. 309-308.
Easterly William, (2002), Economic Growth in Ethiopia: Retrospect, and Prospect. Ethiopia.
Easterly, W. and Rebelo, S. (1993), Fiscal Policy and Economic Growth: An Empirical Investigation, NBER Working Paper No. 4499, Cambridge, MA: NBER
ECA (2011), Economic Report on Africa 2011, governing development in African-the role of the State in economic transformation, Economic Commission for Africa, Addis Ababa
Enders, W. (1995), applied econometrics in Time series, Econometrics Journal article, New York.
Fan S. and Zhang, X. (2004), Infrastructure and regional economic development in rural China, China Economic Review 15: 203-214.
Fisher, A. and Clark, C. (1939), Production, primary, secondary and tertiary, Economic Record 15
Geda, A. and Degefe, B.(2005), Explaining African Growth Performance: The Case of Ethiopia, AERC Collaborative Research Project, Nairobi, Kenya.
Geda A., Shimeles A. and John Weeks (2008), Growth, Poverty And Inequality In Ethiopia: Which Way For Pro-Poor Growth?, Journal of International Development
Grossman, G. and Helpman, E. (1991), Innovation and Growth in the Global Economy, Cambridge: MIT Press, 1991, chapters 1-5.
Hafiz K., Muhammad I., and Muhammad A.(2010), Exploring the effect of TFP growth on future output, Pakistan Economic and Social Review, Vol. 48, pp 105-122.
Hirschman, A.O. (1958), the Strategy of Economic Development, New Haven, Yale University Press
Hulten, R. (1996), Infrastructure Capital and Economic Growth: How Well You Use It May Be More Important Than How Much You Have, NBER Working Paper No. 5847, Cambridge,
Isaksson, A. (2002), Human Capital and Economic Growth: A Survey of the Empirical Literature from 1990 to the Present, mimeo, Vienna: UNIDO.
Johnston, F. and Mellor, W. (1961), The Role Of Agriculture In Economic Development, American Economic Review 51(4):566-593.
Jones, C.I. (1995), R&D-Based Models of Economic Growth, Journal of Political Economy, Vol. 103(4),
Keller, W. and Yeaple S.R. (2003), Multinational Enterprises, International Trade, and Productivity Growth: Firm-Level Evidence from the United States, NBER Working Paper No. 9504, Cambridge, MA: NBER.
Khan, S. (2006), Macro Determinants of Total Factor Productivity in Pakistan, State Bank of Pakistan, Working Paper Number 10.
Kongsamut P., Rebelo S., and Xie D. (1997), Beyond Balanced Growth, NBER Working Paper Series 6159, Cambridge, MA 02318
Krueger, M. (1988), Policy lessons from development experience since the Second World War, Handbook of development economics Volume 1. New York, NY: Elsevier.
Kumar and Russell (2002), Technological Change, Technological Catch-up, and Capital Deepening: Relative Contributions to Growth and Convergence, American Economic Review 92(3)
Kuznets, S. (1961), Capital in the American economy, National Bureau of Economic Research, USA
Kuznets, S. (1966), Modern economic growth, New Haven, CT: Yale University Press.
Lin, J. (2012), New Structural Economics: A Framework for Rethinking Development and Policy, Policy Research Working Paper 5197, World Bank, Washington DC.
Lucas, R. (1988), On the Mechanics of Economic Development, Journal of Monthly Economics 22,3/42
Matthews, R. (1986), The economics of institutions and the sources of growth, The Economic Journal, 96,903-18.
Mayer, J. (2001), Technology Diffusion, Human Capital and Economic Growth in Developing Countries, Discussion Papers, No. 154, Geneva:
Nachega, C. and Fontaine, T. (2006), Economic Growth and Total Factor Productivity in Niger, IMF Working Paper 06:208.
Nelson, R. and Phelps, S. (1966), Investment in Humans, Technological Diffusion, and Economic Growth, American Economic Review, Vol. 56, pp. 69-75.
Ngai, L. (2004), Barriers and the transition to modern growth, Journal of Monetary Economic 51
Nicoletti, G. and Scarpetta, S. (2003),Regulation, Productivity, and Growth: OECD Evidence, Vol. 36
Perron, P. (1989). The great crash, the oil price shock, and the unit root hypothesis, Econometricia, 57(6):1361-1401
Rahmato, D. (2004), The Agricultural Policies of the imperial regime: what Lessons can we draw? discussion paper presented on the occasion of the 50'" Anniversary of the establishment of Alemaya University
Rodrik, D. (1999), where did all the growth go? External shocks, social conflict, and growth collapse, Journal of Economic Growth. 4: 385-412.
Rodrik, D. (2003), In search of Prosperity: analytic narratives on Economic Growth, Princeton, NJ: Princeton University Press
Rodrik, D. (2006), Industrial development: Stylized facts and policies, Draft paper, Cambridge, MA: Harvard University. http://ksghome.harvard.edu/drodrik/industrial%20development.pdf.
Romer, P.M. (1986), Increasing Returns and Long-Run Growth, J. Political Economy, 94: 1002-1037
Romer, P.M. (1990), Endogenous Technological Change, Journal of Political Economy, 98, S71-103
Rosenstein-Rodan, P. (1964), Capital formation and economic development, M.I.T. University Press
Rubina, V. (2008), The service Sector Revolution in India, a Quantitative analysis, United Nations University, UNU-WIDER, Research paper No. 2008/72.
Solow, R. (1956), a Contribution to the Theory of Economic Growth, Quarterly Journal of Economics (The MIT Press) 70 (1): 65–94.
Stephen, J. (2001), Old and New Growth Theories: A Unifying Structure? Stephen J. Turnovsky’s University of Washington, Seattle WA 98195, University of Pisa
Thaddee, B., Xinshen D.,Terry R., and Agapi S.(2009), Dynamics of Structural Transformation, An Empirical Characterization in the Case of China, Malaysia, and Ghana, From IFPRI Discussion Paper 00856, April 2009, Volume 2011 (2011), Article ID 492325, China
Thomas, H. and Marinos, T. (2010), Primary Factor Shares, GTAP estimation of share of factors of production in agriculture sector, GTAP, https://www.gtap.agecon.purdue.edu
Todaro, M.P. and Smith, S.C. (2011), Economic Development, 11th edition, University of Ney York
Torfinn, H. and Jorn, R (2005), Looking Abroad to Understand Productivity Growth: The World Technology Frontier and Industrial Sector Productivity in South Africa.
WB (2011), World Development Indicator Report for 2011 and statistical data online version, World Bank, Washington, DC
William, E. and Ross, L., 2001), It's Not Factor Accumulation: Stylized Facts and Growth Models, the World Bank Economic Review, Vol. 15, No. 2 (2001), pp. 177-219, Oxford University
Zivot, E. and Andrews, W.K. (1992), further Evidence on the Great Crash, the Oil-Price Shock, and the Unit root Hypothesis, Journal of Business and economics, Vol. 10.