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Industrial Clustering, Firm Performance and Employee Welfare

Evidence from the Shoe and Flower Cluster in Ethiopia


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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3. Impacts of the Cluster Development Program in Ethiopia


3.1 Introduction

Since the seminal work of Porter (1990), cluster policy has captivated the interest of policy makers in developed and emerging economies (Bachtler et al. 2005). Many countries in the world including Germany, Brazil, Japan, South Korea, and France have developed specific cluster policies to improve the performance of domestic firms (Martin et al. 2010). Case studies of examples such as Styria (Hartmann 2002) and Basque Country (Aranguren et al. 2006) have documented the results of implemented cluster policies. Only very few of these studies, however, have extensively evaluated the effects of cluster policies on the performance of domestic firms (Martin et al. 2010, Nishimura and Okamuro 2011).

As in the rest of the world, the Ethiopian federal government in collaboration with international development partners such as German Development Cooperation (GIZ) and United Nation Industrial Development Organization (UNIDO) has also recently developed and implemented specific cluster policies to foster the development of its manufacturing sector. To this end, the government establishes special industrial zones and clusters in the vicinity of the capital, Addis Ababa, with basic infrastructure and facilities including roads, telecommunications, water and electricity. The government also provides a package of incentives such as tax holidays, a bonded manufacturing warehouse scheme, an export credit guarantee scheme, a duty drawback scheme, a voucher scheme, and cheap land for export-oriented firms operating in these industrial zones.

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