Firm Heterogeneity and Market Selection in Sub‐Saharan Africa: Does It Spur Industrial Progress?

Abstract

This paper investigates the processes of market selection and industry dynamics in a Sub-Saharan Africa context. Using census based longitudinal data it examines the distribution of productivity within an industry to determine whether patterns of firm entry, exit and survival are driven by underlying efficiency differences. It also estimates the contribution to industry level productivity growth of the reallocation of resources and market share from less efficient producers to more efficient ones. The paper concludes that markets in Sub-Saharan Africa, as represented by Ethiopia, are at least as strong as other regions in selecting efficient firms. Tolerance of inefficient firms also declines with the degree of exposure to international competition. While reallocation of resources played a positive and significant role for industry level productivity, it has only managed to offset the declining tendency in intra-firm productivity.

Imported technology and manufacturing employment in Ethiopia

“…Foreign capital played a major role in the process of industrialization during the 1950s up till the 1970s; foreign private (full or majority) ownership reached 52 % by 1974 with a total of 143 firms (Shiferaw 2005).…”

Patterns of business creation, survival and growth: Evidence from Africa

“…The authors find that the annual rate of new MSE start-ups averages over 20%, and that the vast majority of new firms were one-person establishments. Shiferaw (2007Shiferaw ( , 2009 and Bedi and Shiferaw (2009) are notable exceptions to the majority of African firm-level studies that depend on survey data and instead utilize manufacturing census data. However, in their studies of Ethiopian establishments the authors still face stock sampling (survivorship bias) problems and are limited to the manufacturing sector.…”

“…Unlike previous studies, with the exception of Shiferaw (2007Shiferaw ( , 2009) and Bedi and Shiferaw (2009), we rely on census-based panel data, which allows for better tracking of firm entry and exit. However, we go beyond existing studies since we do not face a stock sampling problem (survivorship bias) and we use a long panel that allows firms sufficient time to follow their natural lifecycle and therefore minimize right-censoring.…”

“…13 Related work in Colombia and Ethiopia includes only the manufacturing sector. For Colombia see, for example,Eslava et al (2009Eslava et al ( , 2010; for Ethiopia see, for example,Shiferaw (2007Shiferaw ( , 2009, andBedi and Shiferaw (2009).…”

Competitive Selection and Technological Capabilities in Ethiopian Manufacturing

“…The production function is estimated based on a census of Ethiopian manufacturing conducted by the CSA between 1996 and 2002. See Shiferaw (2007) for details on the estimation procedure.…”