Page 77 - Azerbaijan State University of Economics

Abrehet Mehari: Factors Affect The Productivity of Large And Medium -Scale
Manufacturing Industry In Ethiopia

For many decades, economists have debated on the sources of factor productivity in the

manufacturing sector. Many factors determine the performance of the manufacturing
sector productivity in developing countries (UNDP,2017). The theoretical and empirical
literature clearly shows that the factors that affect the factor productivity and output of
the manufacturing sector vary from country to country however, the common
determinants of factor of production examined in the empirical literature includes
variables such as trade integration, macroeconomic stability (inflation rate), human
capital development, financial institutions and lending rate, governance, economic
growth, infrastructure, and research and development, and FDI among others (Todaro &
Smith, 2012; Frija et.al, 2015; Arisoy, 2012; Park, 2010; Baltabaev, 2013; Demena &
van Bergeijk, 2019; Calderón & Servén, 2014; Frija, et.al, 2015; Isaksson, 2007;
Kariithi,2017; Jun, et. al, 2007; Xu, et. al.2020; Fadiran & Akanbi, 2017; Rasheed,
2010; Habib, Abbas, & Noman; 2019; Timuno, 2017; Odior, 2013 and Olomola &
Osinubi, 2018). A large variety of variables determine total factor productivity. For that,
the context of this study identifies variables that are commonly touched on in the above
theoretical and empirical studies. In addition, the availability of data in Ethiopia is
considered while identifying the main determinants of TFP in the large and medium
scale manufacturing industries.

Some scholars like Arkebe (2018) have made descriptive analyses on the structure
and performance of manufacturing industries in Ethiopia. But his study does not
objectively identify the main factor behind the performance of the sector. Melaku
(2013) also analyzed the trend and components of factor productivity growth in the
manufacturing sector in Ethiopia. But he did not identify the main factors behind
factor of production growth in the manufacturing sector. Further, there are limited
time-series empirical studies that attempted to analyze the determinants of factor of
production growth in the manufacturing sector in Ethiopia. This observable gap has
instigated this research to identify the main determinants of factor of production
growth in large and medium scale manufacturing industries in Ethiopia using
quantitative data. In addition, the trend and structure of the Ethiopian manufacturing
sector are analyzed descriptively. The main objective of the study is to analyze the
determinants of total factor productivity in the large and medium-scale
manufacturing industry in Ethiopia over the period 2001-2017. The study tries to
address the following specific objectives:

1.To analyze the trend and structure (number, employment, and value-added) of the
large and medium-scale manufacturing industry in Ethiopia over time.
2.To investigate the main determinants of factor productivity in the large and
medium-scale manufacturing industry in Ethiopia.

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