Foreign Participation, Productivity and Transition in Ethiopia: Firm-Level Evidence
(with Mesay Melese)


This paper investigates the effect of foreign presence at the sector and firm levels on the productivity of manufacturing firms in a least developed country in transition, Ethiopia. We examine both labor and total factor productivity (TFP). The latter is estimated using the Levinsohn and Petrin methodology as well as Wooldridge’s suggested correction. Using firm-level Census data for 2002-2009, we control for a number of observed factors as well as unobserved heterogeneity. We find robust evidence that foreign firms are more productive, all else equal, but weaker positive effects from the presence of other foreign firms at the sector and regional levels. There is some, but less robust evidence that domestic firms benefit from this presence. We separately examine publicly owned firms, which still constitute a significant share of the economy and generally have higher TFP, but lower labor productivity. They are similarly impacted, except those that make the transition to private firms during the sample period, which tend to benefit from foreign firm presence.

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