EDRI Working Paper 020: What drives productivity change in the manufacturing sector? Evidence from the metalworking industry in Ethiopia

Abstract

We employ longitudinal data to explore sources of heterogeneity in productivity among firms in the metalworking industry in Ethiopia. We measure multifactor and labor productivity using non-parametric and regression residual parametric approaches. We find a sizable improvement in both labor productivity and TFP over time, which is also accompanied by large productivity dispersion across firms in the industry. The decomposition of industry-level productivity indicate that productivity increases is mostly explained by the reallocation of market shares across plants in the industry and that firm exit is preceded by declining productivity trends. Our reduced model also indicates that labor productivity and TFP is significantly higher in firms with a large share of workers with vocational training background. Productivity, however, does not differ with firm ownership. These results are robust to the choice of productivity measures.