The prime role of ADLI is to transform the traditional agrarian economy to advanced industrial economy through inter-sectoral linkages between agriculture and industrial sectors. In line with ADLI, Johnston & Mellor (1961) documented that agriculture contributes to economic growth through inter-sectoral linkages in: (i) supply of surplus labor to firms in the industrial sector; (ii) supply of food for domestic consumption; (iii) provision of market for industrial output; (iv) supply of domestic savings for industrial investment; and (v) supply of foreign exchange from agricultural export earnings to finance import of intermediate and capital goods. These inter-sectoral linkage areas are considered as the central domain and guiding principle of ADLI in promoting structural change in Ethiopia. Building on these basic principles, more recently, Ethiopia has seen substantial economic transformation, largely in the form of significant improvements in agriculture and public investment (Dorosh, Schmidt, and Shiferaw, 2012).
While these investments have contributed to impressive poverty reduction in recent years and the growth records of Ethiopia are remarkable and uncontroversial, what is drives structural change and growth? to what extent ADLI achieved its ambitious goal in transform Ethiopia’s economy from traditional agriculture to more modern industrial sector? The extent of labor mobility and productivity effects on sectoral growth performance and their relative contribution to growth and structural change are subject to debate. Numerous views are put forth about the driving forces behind the transformation of Ethiopia’s growth landscape. Recently, overall economic assessment of the country disclosed that average GDP growth was 10.9 % from 2004 – 2017and attribute it to the role or implementation of right polices and reforms, political stability and expanded cultivated land and increased agricultural productivity (NPC, 2018).
Nevertheless, a World Bank (2016) report indicated that Ethiopia’s agriculture specifically in crops and livestock output-is captured in a “low productivity trap” and has not seen continual increases in either land or labor productivity. Similarly, Altenburg (2010) documented that latest enhancement of economic growth in Ethiopia is not because of rise in productivity, but a result of favorable agro-climatic condition, boom in construction sector, considerable inflow of aid and remittances.
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On the other hand, in his detailed study of agricultural productivity in Africa, Nin-Pratt (2015) reported that agricultural output per worker grew by 2.6 percent during 2001–2012 compared to 0.6 percent growth during 1990s. According to this study Ethiopia is among the best performer. The study also indicated that there was no stable and profound growth in the 1970s and 1980s. The variations in the above studies imply there is a need to investigate the effects of ADLI on the patterns of SET and economic progress in Ethiopia.
Latest study conducted by CSA (2017) showed that the ratio of imported inputs to total raw materials for the overall manufacturing sector has been 0.50, mostly uniform during the period of 1995/96 to 2015/16, underscoring the weak backward linkages in Ethiopia’s manufacturing sector, despite the unevenness across industries (Oqubay , 2018). According to Oqubay imported-input dependency ratio increased by 75 percent in the leather and leather goods industry; 57 percent in the manufacturing of food products and beverages; and 38.5 percent in textiles and apparel production, suggesting weak backward linkages with agriculture and the weaknesses of existing agriculture led industrial policy in developing verticality in these sectors.
The same study indicated that the manufacturing of other non-metallic products enjoyed a 55 percent decline in the imported-input dependency, suggesting some improved domestic linkages. The imported-input dependency ratio also fell in fabricated metal products (a reduction of 53 percent), and more modestly in rubber and plastic products and basic iron and steel (Oqubay, 2018). Both of this study concluded that SET has been inhibited by the relatively slow development of an industrial sector, and modest rates of urbanization. But neither of those study showed the drivers of sectoral growth, evolution of sectoral composition of output, extent of labor mobility and productivity and the relative effects of ADLI on ST which this thesis intend to examine.
A key to this thesis is therefore, to examine the effects of ADLI on SET and economic growth of Ethiopia based on sectoral labor & output productivity growth, contribution and their linkage to growth and structural change and how its effects perceived by major stakeholders on the basis of the available literature, policy analysis (linkage of agriculture to industry) and using both quantitative and qualitative analysis. In this thesis, the actual movement of labor across sector with what would have been predicted based on its factor endowment are compared with some developing countries following the same strategy in economic progress. Therefore, this thesis aims to investigates the role or effects of ADLI in fostering SET, boosting economic growth and how its effects perceived by major stakeholders in Ethiopia based on empirical evidence from a single country perspective.
Ethiopia, with ancient political history, yet had not managed to move more of its population from subsistence agriculture in which roughly 65 percent are still engaged. The agriculture sector is still very inefficient due to a number of natural and manmade factors. At national level there is still a huge gap in food self-sufficiency and widespread food insecurity at household level. The highlander who engaged in agricultural production still strive to make ends meet due to highly degraded land whereas in the south and south-western areas, poverty persists on a large scale in the midst of plenty and arable land.
Ethiopia is still one of the poorest least developing countries ranking at 173 out of 189 countries in human development index with the score of 0.463 which is below the average of SSA (0.567) . This problem has been the focus of both academic and policy attention for more than a decade which shows a very narrow significant change. Even though the economy showed accelerated growth from promoting ADLI more recently, there is still a large hurdle for Ethiopia to overcome in order to achieve the benefits hereof. Ethiopia has not been able to transform its economic structure, rise in productivity in agriculture and hence, make room more for productive sectors like manufacturing.
Thus, it’s crucial to assess whether there is a gap between ADLI’s conventional recommendation and achievement which this study intends to examine with due attention to its effects on SET, economic growth and how its effects perceived by major stakeholders. Such attempts of an in depth understanding of ST are basically important for policy makers to design effective policies to achieve broader objective of inclusive growth. It should therefore, a good case to investigate how polices and their perception by major stakeholders, structural change and economic transition interlinked.
Following the down fall of the communist regimes in socialist countries, like Ethiopia and entering into the third decade of liberalization, economists, sociologists and policymakers are witnessing a number of macroeconomic puzzles. For instance, the takeoff process and transition were not smooth as many people expected, particularly for least developed economies. The length and the effects of takeoff and transition varied among countries. Some policies worked well for one country but not for another country(Dabla-Norris, 2013).
Many economists and policymakers are still puzzling with why some countries have experienced better success in the takeoff and transition process than others. One-way to solve the mystery is to understand the role of ADLI and related policy directions & how its effects perceived among major stakeholders, the existence of inter-sectoral linkages among major economic sectors and the role of ST in boosting economic growth in Ethiopia.
Recently, empirical studies focused on documenting the stylized facts of structural change was reviewed extensively on growth and structural change by Herrendorf, Rogerson, and Valentinyi (2013). In their review, they conclude that there is substantial amount of data regarding the process of SET in today’s advanced economies, but only little is known about this process in today’s developing economies. They suggested more quantitative studies on SET in today’s poor economies which this study tries to shed light on in country perspectives.
Thus, it is desirable to document its features using relatively long time series data for individual country which this study intend to contribute as the process of SET continues throughout development. Most of the studies on SET emphasizes on multi-sectoral version of aggregate growth model or sectoral growth model rather than the pattern or characteristics of SET (Herrendorf et al., 2013).
Though, such models are helpful for realizing the general driving forces of structural change, they ignore many country- specific critical factors in determining alternative growth paths that countries may follow in their development process. For instance, initial economic structures are quite different across countries, and such initial conditions often influence the SET of choices facing different countries. Countries followed different development path and pursued varied policy direction due to their unique internal situation to transform their economic activities. Differences in policy implementation and perception on the effects of policy on economic growth by major stakeholders also affects growth and the extent of structural change among countries.
To address the gap, this study attempts to build on models that can quantitatively account for the features or properties of SET for individual country and in the process, it intends to assess the importance of various determinants of economic mechanism in critical focus on the role of policy intervention (ADLI) & how its effects perceived by major stakeholders. These sharper insights enable us to understand the effects of ADLI in changing the patterns of economic structure, identifying key determinants and challenges of SET in Ethiopia.
Furthermore, Ethiopia, as an emerging economy with robust economic growth, approximately around two million labor is entering its market each year (NPC, 2017). This implies the fact that Ethiopia needs a large number of productive jobs which cannot be resolved by the current economic patterns and structure. Hence, there is a need to examine the effects of policy intervention (ADLI) and how its effects perceived by major stakeholders in facilitating SET, boosting and driving growth determinants, its linkages with growth progress and pursue remedies for the major challenges Ethiopia faces while implementing ADLI.
References
- World Bank – Ethiopia Overview
- ADBI – Comparative Analysis of the Economic Effect of Agricultural Growth and Export-based Industrialization on Poverty Reduction
- The Economist Intelligence Unit – Country Report: Ethiopia
- Journal of Comparative Economics – Brawn from Weakness: Rural Labour Markets, Heterogeneity, and Structural Transformation in Ethiopia
