The Political Economy of Growth in Ethiopia; By Alemayehu Geda

1. Introduction
With a population of over 70 million in 2005, Ethiopia is the second most populous
country in Africa. Its history as a political entity stretches back to antiquity, and
almost uniquely within Sub-Saharan Africa, it has never been colonized. Yet Ethiopia
is one of the poorest countries in the world. Rainfall and commodity prices have a
major influence on year-to-year growth, but I argue in this chapter that the detrimental
impact of these exogenous factors has been accentuated by a policy environment that
has reflected the narrow and shifting influences of politically dominant interest
groups. At the microeconomic level, investment behavior has reflected the pervasive
influence of both exogenous and policy-generated risks to income and property. In the
aggregate, poverty and slow growth have reproduced themselves over time. Each
reflects the joint influence of structural vulnerabilities and weaknesses in governance.
Against this background, key public-sector institutions have provided a critical
minimum level of policy continuity in Ethiopia. In their absence, the impact of a
volatile political economy on growth would have been even greater.
The literature on Ethiopia’s long-run economic growth is limited. Useful but
largely descriptive macroeconomic reviews appear in Eshetu and Mekonnen (1992)
for 1974-1990, the papers edited by Alemayehu and Berhanu (1999) for 1991-1999,
and MEDaC (1999), EEA (2000) and Berhanu and Seid (1999). Comprehensive
empirical studies of the growth process are limited to those of Netsante (1997) and
Seyoum (1997), who estimate augmented Solow growth models; and Seid (2000).2
Physical capital fails to have a strong impact on growth in all three of these studies.
Results for human capital are less conclusive, suggesting problems of data and
method: thus Netsante finds a substantial contribution of education to growth, but
Seyoum and Seid do not.
The present study differs from these in several ways. It constructs a detailed
and empirical and analytical narrative of the growth record, and emphasizes political
economy factors, the role of institutions, and the behavior of microeconomic agents. It
also benchmarks Ethiopia’s growth performance against that of all other developing
I begin in Section 2 by placing growth in Ethiopia in its politico-economic and
historical contexts. I distinguish three successive policy regimes in the post-1960
period and use growth accounting and cross-country econometrics to characterize the
growth record across these regimes. Section 3 turns to explanation; I examine the
nature of product and factor markets, the roles of institutions and political economy,
and the behavior of microeconomic agents. I argue that growth in Ethiopia is largely
determined by political economy factors,……Click here to read The Political Economy of Growth in Ethiopia

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