Evidence from Ethiopia
Organized by the Ethiopian Development Research Institute (EDRI) and the International Growth Center (IGC), a collaborative institution of EDRI, a research paper that focuses on examining the role of infrastructure in shaping the effects of trade liberalization on the performance of Ethiopian firms was presented on the 29th of November 2017 at EDRI’s conference room by Marco Sanfilippo, researcher of the IGC team.
Our study underlines the importance of domestic transport infrastructure in ensuring that gains from trade are spread uniformly within developing countries. We investigate the role of infrastructure in shaping the effects of trade liberalization on firm performance. Using census data on Ethiopian manufacturing firms from 1998 through 2009 combined with information on tariff reform and improvements in road infrastructure at the town level, we show that a reduction in the tariff on inputs is associated with improvements in physical productivity for domestic firms. We also find that a reduction in both input and output tariffs is associated with higher productivity for firms located in towns with better road infrastructure, and that there is an economically significant complementarity effect in moving from low- to high- levels of infrastructures. We provide also evidence of conflicting effects of improved road infrastructure on firms’ performance, arising from lower intra-national transport costs, greater local intermediary competition and better local demand conditions for the intermediary. Results are robust to an instrumental variables estimation strategy, alternate measures of both productivity and road infrastructure and various cuts of the data.