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Titleeconomic transformation and sectoral growth options
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LanguageEnglish
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Page 1

Economic Transformation and Sectoral

Growth Options in Ethiopia:


Considerations for Achieving Middle Income Country

Status





Zerayehu Sime Eshete













THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE

REQUIREMENTS FOR THE AWARD OF DOCTOR OF

PHILOSOPHY IN ECONOMICS OF THE UNIVERSITY OF

NAIROBI









November 2013

Page 2

i




DECLARATION



This thesis is my original work, which has not been presented for a degree in any

university.



Signature Date

Zerayehu Sime Eshete







This thesis has been submitted for examination for PhD in economics with our approval

as University supervisors.



Signature Date



Prof. Peter Kimuyu

School of Economics

University of Nairobi













Signature Date



Dr. John Matovu

School of Economics

University of Makerere

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85


Figure 13:-The Dynamics of Sectoral TFP growth by regression-based approach






Source:- wn calculation, estimated using the regression-based approach



Comparing the estimated sectoral TFP growth rates from both approaches, the study

chooses the growth accounting approach in order to calibrate the induced sectoral TFP

growth. This is mainly because of 1) maintaining a consistent assumption of constant

return to scale across the paper including the CGE model 2) The results from the growth

accounting approach show that the agriculture uses labour intensive technology while

the industry and service use capital intensive with negative TFP growth rate across

sectors, on average. This result relatively reflects the actual economic performance of



5.1.2 Analyzing the Determinants of Sectoral TFP Growths


Using the estimates of the TFP growths for the agriculture, industry and services, the

paper specifies, estimates, and analyzes the determinants of sectoral TFP growth using

VARX model. On the basis of the econometric results, the study uses statistically

significant explanatory variables in order to generate the induced sectoral TFP growths.

Hence, the empirical results of descriptive analysis, optimal lag length, stationarity test,

regression outcomes, diagnostic test, impulse response function, and variance

decomposition are presented as follows.

-0.300

-0.200

-0.100

0.000

0.100

0.200

0.300

1970 1980 1990 2000 2010 2020

ATFPG

ITFPG

STFPG

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86


Descriptive Analysis


Descriptive analysis gives the general features of the data and emphasizes how it looks

like the distribution of time series. Table 18 below presents both central tendency and

variation measures of the distribution of the data in 1972-2011. The average value or the

mean value of the sectoral TFP growth for the three sectors is negative, indicating how

the sectoral TFP growths can be the daunting challenge for economic transformation and

sustainable growth. All variables in the VARX model have a wide range of dispersion

around the mean with a mix of positive and negative skewness and peakedness.


Table 18:-Summary of Descriptive Statistics


Variable Obs Mean Std. Dev. Variance Skewness Kurtosis Min Max

TFPGA 40 -.005 .081 0.006 -0.81 4.73 -.274 .182

TFPGI 40 -.116 .487 0.23 -1.91 7.55 -2.04 .64

TFPGS 40 -.037 .246 0.06 -1.73 6.12 -.884 .317

GARD 40 .170 .470 0.22 1.69 6.61 -.627 1.77

GRNW 40 .046 .0479 0.002 0.72 3.94 -.0502 .172

GIMC 40 .058 .366 0.13 -0.37 3.26 -.99 .724

GPEP 40 .083 .104 0.10 -0.04 2.79 -.163 .315

OPP 40 28.35 10.62 112.95 0.56 2.21 11.73 51.53

IR 40 15.73 5.61 31.51 0.14 1.56 6.15 24.65

INF 40 9.25 11.29 127.53 1.11 4.64 -9.81 44.4

Source:-



TFPGA stands for TFP growth rate for agriculture; TFPGI stands for TFP growth rate

for industry; TFPGS for TFP growth rate for service; GARD denotes growth rate of

government expenditure for agricultural R&D, GIMC denotes growth rate of imported

capital goods ,GPEP denotes growth rate of pupil in primary school; GRNW stands for

growth rate of road net works in kilometers ; stands for openness of the economy;

LR denotes service trade liberalization index and INF for inflation.




With these descriptive statistics, the variables show some fashion of statistical

relationship among themselves as captured by the Pearson product-moment correlation

coefficient (Table 19). This coefficient is symmetric and gives some clue about the

Page 194

182



Savings - Investment Balance:


.(1 ). . . .
i i i c c c c

i INSDNG c C c C

MPS tins YI GSAV EXR FSAV PQ QINV PQ qdst WALRAS
  

       


Non government saving + government savings + foreign savings = fixed investment + stock change




i
MPS = Marginal propensity to save for
domestic non-government institution
(exogenous variable)

i
tins = Exogenous direct tax rate for domestic

institution i

i
YI = Income of domestic non-government
institution

GSAV = Government savings





EXR = Exchange rate (LCU per unit of FCU)
FSAV = Foreign savings (FCU)

c
PQ = Composite commodity price

QINV = Quantity of investment demand for
commodity

c
qdst = Quantity of stock change
WALRAS= Saving- Investment Gap



.(1 )
i i

MPS mps MPSADJ 




i
MPS = Marginal propensity to save for
domestic non-government institution
(exogenous variable)



i
mps = Base savings rate for domestic

institution i

MPSADJ = Savings rate scaling factor (= 0 for
base)


Government balance: -

YG EG GSAV 
Government revenue =government expenditure + government savings

YG = Government revenue, EG = Government
expenditures

GSAV = Government savings




Factor Market Balance:-
fa f

a A

QF QFS



: Demand for factor = Supply for factor



fa
QF = Quantity demanded of factor f fQFS = Quantity supplied of factor

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183



Total absorption: -

. . . . .
c ch ac ach c c c c c c

h H c C a A Ac C h h c C c C c C

TABS PQ QH PXAC QHA PQ QG PQ QINV PQ qdst
       

        



Total absorption=household market consumption + household home consumption + government
consumption + fixed investment + stock change

TABS = total nominal absorption

c
PQ

= Composite commodity price

ch
QH

= quantity consumed of commodity c by
household h

c
qdst = quantity of stock change

ach
QHA

= quantity of household home
consumption of commodity c from activity a for
household h

c
QG

= government consumption demand for
commodity

ac
PXAC

= producer price of commodity c for
activity a

Ratio of investment to absorption: - . . .
c c c c

c C c C

INVSHRTABS PQ QINV PQ qdst
 

  

(Total absorption ratio) ( total absorption) = fixed investment + stock change



INVSHR = Investment share

TABS = total nominal absorption


= Composite commodity price

=quantity of investment demand for

commodity

c
qdst = quantity of stock change

Ratio of government consumption to absorption: -

: (Government consumption absorption ratio) (total absorption )=

government consumption

= government consumption share in
nominal absorption

TABS = total nominal absorption

= Composite commodity price

= government consumption demand for

commodity

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