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Industrial Clustering, Firm Performance and Employee Welfare

Evidence from the Shoe and Flower Cluster in Ethiopia

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Tigabu Degu Getahun

The author examines the productivity, profitability and welfare effects of industrial clustering and a public policy promoting industrial clusters in Ethiopia. He uses reliable counterfactuals as well as original enterprise and worker level data. By investigating the effect of firm, time, entrepreneur and site specific factors as well as endogenous location choice issues, the author finds strong evidence for the existence of significant agglomeration economies in the Ethiopia leather footwear cluster. Using primary survey data collected from firms which benefited from the cluster policy and those that did not, both before and after the implementation of the policy, the author shows the unintended negative impact of a cluster prompting policy in Ethiopia. The book is essential reading for those who are interested in the gender and welfare impact of female full time labor force participation in industrial jobs.
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1. General Introduction

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1.1 Background

Ethiopia has remained a predominately agrarian subsistence economy despite its long history of civilization. Industry in the modern sense only emerged in the country during the 1920s.1 Yet, a cognizant effort to stimulate industrial growth began with the formation of the federal government’s first five-year development plan in 1957. During the 1960s and early 1970s the country enjoyed relatively better industrial performance, although most manufacturers were foreign owned (Eshetu, 1985; Shiferaw, 1995).

In 1974 a military government came to power that instituted command oriented policies and nationalized virtually all medium- and large-scale industrial companies owned by both foreigners and Ethiopians. Private ownership was only permitted for cottage industries and small-scale enterprises during this period. The strict leftist economic and political ideology pursued by the military government suppressed private economic activity considerably and subdued entrepreneurial spirit (Eshetu, 1985; World Bank, 1985).

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