Foreign Ownership and Productivity in Ethiopia's Manufacturing Sector

Abstract

The purpose of this study is to measure productivity and to examine the relationship between foreign ownership and multifactor productivity in Ethiopian manufacturing establishments. To empirically test whether there is a relationship between foreign ownership and productivity, fixed effect and probit regressions are estimated using firm-level data on large and medium scale manufacturing firms in Ethiopia from 1996-2010. The study also examines whether foreign-owned firms target productive firms. First, we find significant dispersion in productivity. Second, the effect of foreign ownership on productivity is mixed with positive effects for the textile, leather and footwear, and paper and printing subsectors; negative effect for the wood subsector; and no effect of foreign ownership on productivity in the entire manufacturing industry. Third, we find that foreign-owned firms target more productive firms. We discuss the implications of these results for Ethiopia’s industrial development policy and foreign capital investment in the manufacturing industry.