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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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4. Welfare and Gender Impacts of Female Employment in an Industry Cluster: Evidence from the Flower Cluster in Ethiopia


The results from the leather shoe cluster case study, in chapter two, suggests that clustered firms paid higher mean wages compared to non-clustered counterparts; implying a welfare increasing effect of industrial clustering. In addition, the results of a correlation matrix analysis disclose a positive and significant correlation between firm productivity and the number of employees, again implying positive welfare effects of industrial clustering. The results of a gender disaggregated analysis of employment effects also reveals a positive relationship between gender equity and industrial clustering. However, these results were based on the analysis of cross-sectional data that were collected from shoe manufacturers and hence did not account for the initial welfare difference between the two groups of workers. Because, given the longer history of the traditional leather shoe cluster, getting worker-level baseline information based on retrospective surveys is less reliable.

Thus, to account for the initial differences between the two groups of workers and thereby to disentangle the effect of industrial clustering from other confounding factors, the study found it relevant to conduct a second cluster case study. For this purpose the study considered an industrial cluster that is relatively younger than other clusters in Ethiopia; and that mostly employs poor women who had previously been engaged in household domestic work and precarious jobs. The Ethiopian cut flower industry cluster appears to be among the few clusters that best satisfies the aforementioned criteria and therefore is a suitable subject to elucidate the welfare and gender effects of...

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