Keywords

While Ethiopia is often portrayed as unique in the African setting—given its limited history of foreign occupation, long history of state centrality, relatively large population, and highland geography—it is not inherently more unique than any other African state. All African states have their own historical record and have been formed by the interaction of local and external factors (Bayart, 1993; Andersson, 2018). In light of this, the case of Ethiopia is not intended to be interpreted either as a representative or as a unique case for the broader SSA experience. Instead, it is intended to be a country-specific study shedding light on Ethiopia’s particular development outcomes. Therefore, to contextualize the findings of this research, the following sections outline some key elements of Ethiopia’s rich economic, political, and agricultural history.

Economic Context

While Ethiopia has a near-millennium long history with the Imperial Regime dating back to 1200s, Ethiopia in its roughly current form can be seen to start under Emperor Menelik II, in power 1889–1913 (Young, 1998). This period saw a strengthening of infrastructure and communications, education, and the taxation system, as well as the development of Addis Ababa as the new capital of the Empire (Greenfield, 1965). There was also a modernization of the political apparatus, with the establishment of the country’s first ministries in 1907 (Shiferaw, 2019). Together, these improvements mark a transformation toward the modernization of the Ethiopian economy around the turn of the twentieth century. In addition, unlike many other countries in SSA, Ethiopia was also relatively outward-oriented during this time, continuing to trade in goods that it had been trading for centuries—such as gold, hides, ivory, salt, and luxury textiles—as well as expanding its trade in cash crops, and especially coffee (Wubneh, 1993).

However, despite these improvements, the economy was still highly traditional and centered on traditional agricultural practices. The trading sector did not expand into a large sector of the economy, and most of the trade that took place was carried out by Arab, Greek, and Armenian traders rather than traders from Ethiopian ethnic groups (Wubneh, 1993). Traditional agriculture, dependent on age-old plow-oxen technology, was the mainstay of the economy, with trade and crafts only playing a small role. As only a small part of the population was participating in the monetized economy, transactions were conducted mainly by barter and through crude media of exchange (Shiferaw, 2019). Wage labor remained limited, economic units were largely self-sufficient, foreign trade was of limited size, and the market for manufactured goods was very small (Wubneh, 1993). As such, throughout the nineteenth century, the Ethiopian economy can be classified as remaining near-feudal, despite some steps toward economic modernization at the end of the century.

The land tenure system can be identified as one aspect that was holding back the transformation of the Ethiopian economy up until and throughout the nineteenth century. The tenure system was highly complex, based on a system of a landed gentry and heavy-handedly steered by the royal family, the church, and the military (Abegaz, 2004). Most land was controlled by the state or feudal lords and most citizens were tenants on this land (Jemma, 2004). Land tenure and landholdings were highly politicized as the Crown’s distribution of land to both the nobility and peasants was at the core of the political power play, and the Emperor’s claim to the throne. In addition, the provision of land grants to Ethiopia’s historically powerful military was one of the main mechanisms the Crown used to secure control of Ethiopia’s peripheries beyond the Northern highlands (Chinigò & Faniti, 2015). In this system, the most important revenue streams for the rulers remained the tributes (in kind and in labor) that they raised from their subjects (Shiferaw, 2019). In light of the domination of the traditional agricultural sector and the near-feudal arrangement of the economy, most of the country’s population remains exposed to the vagaries of nature throughout the nineteenth century. This is exemplified by, for example, the devastating Great Ethiopian Famine in 1888–1892, where a third of the population are estimated to have died (Pankhurst, 1966).

Ethiopia remained marked by a traditional economic structure centered on ox-plow agriculture well into the twentieth century, and little efforts were made to alter this before the 1950s. Under the last Emperor of the Imperial regime (Emperor Haile Selassie I, in power 1930–1974 apart from the Italian occupation 1936–1941), more efforts were made to move away from the subsistence economy to a more modern economy, based on a modern agricultural sector and a growing industrial sector. This led to the adoption of the first national five-year plan in 1957. The five-year plans aimed to transform Ethiopia into a modern economy through the strengthening of infrastructure, communications, education, health care, and public services (Wubneh, 1993).

However, due to misguided policies, poor provision of public goods, and a protracted civil war, economic progress was limited throughout the twentieth century too, both under Haile Selassie and under the communist Derg regime that violently overtook power in 1974, and remained in power until 1991. This left Ethiopia a war-torn and famine-plagued country when the Ethiopian People’s Revolutionary Democratic Front (EPRDF) took over from the transitional government (1991–1994) in the early 1990s (Cheru et al., 2019; Manyazewal & Shiferaw, 2019; Shiferaw, 2019). Since then, the country has seen a strong economic recovery in the 1990s, followed by 20 years of nearly uninterrupted growth (apart from the drought year of 2003) in the twenty-first century. Since 2003, GDP per capita growth has been steady, and the average GDP per capita growth for 2000–2018 was 6.3%, compared to 0.8% in the 1951–1999 period (Fig. 5.1).

Fig. 5.1
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GDP per capita growth and population growth (annual %; left axis) and GDP per capita (2011 constant USD, PPP; right axis). (Source: Author’s calculation based on PWT 2020 (Feenstra et al., 2015) and TED 2020 (The Conference Board, 2020))

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Ethiopia’s recent economic growth has been accompanied by the tripling of GDP per capita since the early 1990s, a fall in extreme poverty (living on under 1.90 USD/day) from 69% in 1995 to 32% in 2015, a fall in the mortality rate under 5 years old from 170 per 1000 live births in 1995 to 50 in 2019, and an increase in life expectancy from 49 years in 1995 to 66 years in 2018 (World Bank, 2021). However, despite the recent growth, the Ethiopian economy remains poor, agrarian, rural, and at an early stage of economic development. Over 70% of the population still live under the 3.20 USD/day poverty line. Moreover, the agricultural sector accounts for 33% of GDP compared to 5% for manufacturing, and 80% of Ethiopia’s 112 million inhabitants live in rural areas (World Bank, 2021).

In terms of the structural transformation, production has shifted from agriculture toward the service sectors rather than manufacturing, and the employment transformation is slow (Martins, 2018). The economic transformation has been challenged by the difficulty of establishing an internationally competitive manufacturing sector, managing the balance-of-payments problems of the government’s ambitious development plans, curbing food inflation, and raising the living standards of Ethiopians (Schmidt et al., 2018; Cheru et al., 2019). Given this uneven record, it remains to be seen whether the government’s aim of transforming Ethiopia into a middle-income country by 2025 will be fulfilled.

In the twenty-first century, many countries across SSA have experienced similar development paths as Ethiopia. Points of commonality include rapid economic growth compared to the “lost decades” of the 1980s and 1990s, growing agricultural output and productivity, an improvement of GDP per capita despite population growth, and a generally limited structural transformation, at least toward the manufacturing sector (Grabowski, 2014; Wiggins, 2018; IMF, 2020). However, even in this comparative context, the Ethiopian experience is rapid—the country’s economic growth has been the fastest in the region since 2000 (Table 5.1), and its agricultural output has increased six-fold (Rohne Till, 2021) rather than doubled as in many other SSA countries (Wiggins, 2018). While this growth has taken place from a low base, the Ethiopian GDP per capita is now among the mid-performers in this sub-sample of fast SSA growers, at rank 10 out of 20 (Table 5.1). Moreover, Ethiopia is ranked 25th out of the 45 SSA countries in IMF’s (2020) World Economic Outlook database.

Table 5.1 GDP growth, GDP per capita growth, total GDP, and GDP per capita in the 20 fastest-growing SSA economies, 2000–2019
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Political Context

The political environment in Ethiopia cannot be properly understood without an appreciation of the state’s particular history. The Ethiopian state has a different political legacy than its fellow countries in SSA, with its almost millennium-long history of state formation and no history of being colonized by a European power except for the brief Italian occupation of 1936–1941. A key feature of Ethiopia’s internal politics is the historical tension between sources of power, with political power centered in the country’s northern highlands and economic power centered in the southern and western regions, which were incorporated into the Empire in the 1800s. This internal tension has made it difficult to build strong nationwide statehood in the country. Under periods of stronger statehood during the Imperial and Derg regimes, the state’s strength was often used for the economic exploitation of politically marginalized regions (Clapham, 2019; Shiferaw, 2019).

The current regime has attempted to solve this tension through a federal system. In 1995, the government adopted a national constitution based on ethnic federalism, which grants self-determination to Ethiopia’s almost 100 different nations and nationalities. Under ethnic federalism, the government has been able to stabilize power and provide security and control over its fragmented territories to a greater extent than its predecessors (Cheru et al., 2019; Clapham, 2019). Nevertheless, political tension remains rife in the country. The first decade of the federalist era was generally seen as a period of increased political stability and strengthening of Ethiopia’s budding democracy. However, there was a backslide following the turmoil of the first general election in 2005 and the massive repression of the opposition (Nega, 2010).

The federalist government itself views its pursuit of state-directed development under authoritarian rule as an attempt at being an East Asian-inspired “developmental state,” as explicitly discussed by former Prime Minister Meles Zenawi (2012). Along with Rwanda, Ethiopia represents the most explicit attempt to implement the idea of a “developmental state” in SSA (Clapham, 2018). This approach is marked by state intervention in many areas of the economy and the market, high levels of public spending, and a strong developmental vision for the nation (Chinigò & Faniti, 2015; Chang & Hauge, 2019).

While the Ethiopian iteration of the developmental state shares several characteristics with its East Asian counterparts, Chang and Hauge (2019) identify two main differences. First, they observe more fragile and fragmented public support for the state’s development project, most likely linked to Ethiopia’s ethnic fragmentation and related tension. Second, they note that Ethiopia’s bureaucracy is weaker than those of many East Asian role models. The lack of public support and the many instances of political turmoil, civil unrest, and conflict under the EPRDF regime pose a real challenge to the continued developmental state project and the wellbeing of the Ethiopian people.

Ethiopia’s stability and security problems are severe, not least reflected in the current conflict in the region of Tigray, where thousands have been killed, hundreds of thousands are facing famine as a consequence of the conflict, and two million people are estimated to have been forced to flee their homes (BBC, 2021; EHRC, 2021; Reuters, 2021; UNHCR, 2021). The conflict has been ongoing since November 2020, following the regional election in Tigray in September 2020. The election was held in defiance of the federal government, which led the federal government to launch a military offensive against the region. The conflict has since escalated into a civil war, where the main opposing sides are the Tigray Defense Forces and the Ethiopian National Defense Force, with the involvement of the Eritrean Defence Forces (CFR, 2022). The current situation is violent and unstable, war crimes have been reported to have been committed by both sides, and there are reports of unabated violence against civilians and of ethnic cleansing against Tigrayans (CFR, 2022; EHRC, 2020; Gavin, 2021; Walsh, 2021).

While the immediate trigger for the civil war was the regional election in Tigray in 2020, ethnic-linked tension has long historical roots in Ethiopia. The tension between the leading party in Tigray—the Tigray People’s Liberation Front (TPLF)—and the federal government has been growing since Prime Minister Abiy Ahmed’s win in the national election in 2018. Prior to this win, the TPLF had dominated Ethiopia’s ruling coalition under the EPRDF for 27 years, despite Tigray representing only 6% of the total population (CSA, 2010; CFR, 2022). EPRDF’s toppling of the Derg regime in 1991 was led by (PM-to-be) Meles Zenawi, who comes from the TPLF, and since then, ethnicity has been increasingly politicized in Ethiopia. Under the rule of Zenawi (1991–1995 as president, and 1995–2012 as prime minister), ethnicity was constitutionally recognized and institutionally accommodated under the frame of “ethnic federalism.” While the federal system may have solved some of the country’s issues in terms of ethnic-based inequities, research suggests that the system may also have created new problems of ethnic tensions and conflict across Ethiopia (Bayu, 2022). Other scholars highlight that the current ethnic conflict is not only a byproduct of multinational federalism and politicization of ethnicity since 1991, but instead have longer historical roots. In this view, the forceful integration of the country’s southern parts under Emperor Menelik II (and continued under Haile Selassie’s rule) is identified as the root cause for today’s ethnic tension (Assefa, 2022). Regardless of the timing of the origin of ethnic tension, the ongoing war is taking a devastating toll on the people of Ethiopia. Civilians are faced with violence, famine, communication blackouts, destroyed infrastructure, and there are reports of extrajudicial killings, mass atrocities, and sexual violence—and to date there are few signs of an improved security situation (CFR, 2022). Rapid efforts to stabilize the situation are therefore crucial for the safety and wellbeing of those affected by the war.

From a wider lens, stabilization of the political and security situation is also needed for continued economic growth. While tension and conflict have historically been part of many countries’ paths to prosperity and are often features of capitalist expansion (Cramer et al., 2020), periods of political instability have been linked to economic shrinking in African economic history (Broadberry & Gardner, 2019). In Ethiopia, economic growth has previously been able to continue despite periods of political turmoil, such as in the aftermaths of the 2005 elections and the state of emergency from 2016 to 2018. While not diminishing the plight of marginalized ethnic groups, rural inhabitants that have lost their land, urban workers that have no right to unionize, and others who have suffered from the oppressive political system—prior to the current war, economic growth has been possible despite the political situation. However, given the severity of the current war, this may not be the case going forward, and its resolution is of crucial importance also for the country’s economy—in addition to the safety and wellbeing of its people.

Policy Context

In terms of policy, the Ethiopian government’s pursuit of the agricultural development-led industrialization (ADLI) development strategy is a key concern for this study on the role of agricultural growth in aggregate growth. ADLI is a macro-level development policy that aims to generate fast agricultural growth to improve national food security and stimulate economic growth through forward and backward economic linkages (MOFED, 2003). First implemented in the early 1990s, the strategy considerably strengthened in 2002 and has been reaffirmed in subsequent development plans (MOFED, 2002, 2003, 2005, 2010, 2015). While the Ethiopian policy is not a direct application of Adelman’s (1984) academic concept, the two share many similarities. The Ethiopian strategy prescribes an array of regulatory, trade, and market policies, including a key policy to greatly increase agricultural public spending. Under ADLI, the Ethiopian government has dedicated a significant share of its public spending to agriculture (Fig. 5.2). In its first decade, ADLI was implemented with a relatively narrow focus on providing off-the-shelf fertilizer packages, improving access to inputs and credit, and providing extension services. While agricultural production increased during this period, ADLI was reformulated in 2002 with the aim of improving its results for both agricultural and aggregate growth (MOFED, 2002).

Fig. 5.2
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Agricultural public spending as a share of total public spending, Ethiopia and African average 1990–2018. (Source: ReSAKSS (2021). Note: The dashed thin line represents the Maputo commitment since 2003 to spend minimum 10%)

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Since then, ADLI has also included efforts to improve the broader market environment, reduce poverty, and combat food insecurity. This includes an increased focus on the commercialization of smallholder agriculture, an expanded role for large-scale agriculture, increased support for infrastructure and rural welfare, and interventions tailored to address the specific needs of the country’s varied agro-ecological zones (MOFED, 2002; FAO, 2003). While the ADLI strategy is still a component of the Ethiopian policy framework, the 2015–2020 five-year plan downplayed agriculture as the economy’s leading sector compared to previous plans, in favor of a greater focus on industry and manufacturing (MOFED, 2015).

In the last two decades, many countries in SSA (e.g., Uganda, Rwanda, Ghana, and Malawi) have assigned a larger role to agriculture in policy. While this commitment appears to have been mainly rhetoric in some countries, Ethiopia is one of the few countries that have met the Maputo commitments in most years (Benin & Yu, 2013; Grabowski, 2014). The Ethiopian commitment has also seen a broader range of agricultural public spending, whereas some other countries (especially Malawi) have channeled the bulk of agricultural public spending through input subsidy programs (Ghins et al., 2017; Hemming et al., 2018). Therefore, the Ethiopian policy commitment to the agricultural sector under ADLI is not unique to Ethiopia, although the centrality of the agricultural sector in the country’s development strategy may be particularly pronounced.

Agricultural Context

Historically, the agricultural sector has been at the core of Ethiopia’s economy. In the 1960s, the agricultural sector still accounted for over 85% of production and over 95% of the population (Timmer et al., 2015). As mentioned above, there has since been a structural shift in terms of production, while the labor force is still predominantly engaged in agriculture. Historically, Ethiopian agriculture has been rain-fed, drought-prone, and traditional, leading to several instances of famine. The sector is still predominantly rain-fed (only 3% of Ethiopia’s arable land is irrigated) and drought-prone (2016 saw the latest major drought) (FAO, 2016; FAOstat, 2021). However, many aspects of the sector are no longer traditional. Fertilizer use has increased four-fold since the early 1990s, the uptake of mechanization is increasing (albeit from a low level), and the country’s large extension program is disseminating modern farming techniques (Davis et al., 2010; Rashid et al., 2013; Berhane et al., 2017).

The sector is dominated by cereal production and small farms. From 1995 to 2018, the total production of all crops in Ethiopia increased from 704,180 tons to 4,527,240 tons, out of which the cereal sector accounted for 87% of total agricultural production in 1995 and 59% in 2018 (CSA, 1995–2018). The agricultural sector in Ethiopia has undergone a tremendous production and productivity increase since the mid-1990s, with a six-fold increase in agricultural production, doubling of yields for the most important crops, and emerging labor productivity improvement (Rohne Till, 2021).

Most of Ethiopia’s agricultural production is attributed to smallholder farmers. The country is dominated by small farms; smallholders account for over 95% of production and arable land (CSA, 2011–2013). The average farm size in Ethiopia is 1 ha. Moreover, 75% of all Ethiopian farms are smaller than 1.95 ha, and the average size of this subset is 0.78 ha (Headey et al., 2014; FAO, 2020). Larger farms (e.g., cooperatives, state farms, and private commercial farms) make up less than 5% of Ethiopian farms and play a limited role in most of the agricultural production apart from specific industries such as tea, sugarcane, and horticulture (Taffesse, 2019). Most farms primarily rely on family labor. While the use of hired labor is common, especially for weeding and harvesting, its share of total deployed labor is small; wage income, on average, accounts for only 10% of household income in rural areas (Bachewe et al., 2016). This relatively small share of wage income indicates agricultural production’s importance to rural incomes and livelihoods in Ethiopia.

A key question linking agricultural production to economic growth is whether small Ethiopian farms are large enough to grow themselves out of poverty in the virtuous cycle envisioned by ADLI and the general agriculture-for-development strategy. While the data on agricultural production shows that both total production and yields have increased in recent decades, the number of farmers has increased more than land expansion. This has led to smaller farms; the average farm size decreased from 1.4 ha in 1977 to 1.0 ha in 2012 (Headey et al., 2014). The growing rural population, combined with a slow movement out of agriculture, likely contributed to this development.

The reduction in poverty headcount ratio from over 60% of Ethiopians living in extreme poverty (under 1.90 USD/day) in the 1970s and 1980s to about half that figure in 2016, as well as an improved level of daily calorie intake, suggests that recent agricultural growth has benefited at least some smallholders (World Bank, 2021). However, there are at least two sub-groups of Ethiopian smallholders: (1) a group with access to relatively large plots located in areas with more favorable agro-ecological conditions and/or market connectivity, and (2) a group that does not have access to these favorable traits. The former group, which Mellor (2017) calls “small commercial farmers” (SCFs), is more likely than the latter to both drive and benefit from agricultural change. Mellor (2017) defines SCFs as rural households that have enough land to produce sufficient income to exceed the 1.90 USD/day poverty line, market most of their production, make almost all of their income from farming, and typically have access to farms sized 0.75–5 ha. These farmers make up 54% of the rural population in Ethiopia, using 77% of the land (Mellor, 2017). However, factoring in the small proportion of large-scale farmers, this implies that at least 40% of the Ethiopian rural population is stuck in near-subsistence farming. This group is likely unable to benefit significantly from the ongoing agricultural transformation. For the segment of the Ethiopian population that cannot grow themselves out of poverty, there is a need for other protective measures, such as safety nets, cash transfers, and public work programs.

Regional differences also influence who benefits from agricultural change. Previous research suggests that areas that are more connected have more successful agricultural improvements than remote areas, and the prospects for both production and commercialization vary widely between regions and locations (Wiggins, 2000; Andersson Djurfeldt & Djurfeldt, 2013; Andersson Djurfeldt, 2017). In Ethiopia, the central regions of Oromia and Amhara have accounted for the bulk of the increase in agricultural production (Rohne Till, 2021). These regions have likely benefited from their central location (close to the main market of Addis Ababa), their favorable agro-ecological climate (Sebastian, 2014), and their comparatively larger farms (Rohne Till, 2021).

In contrast, regional characteristics leave marginal areas at greater risk of stagnant or even falling agricultural productivity, which may push the inhabitants of such regions into labor-intensive, poorly remunerated, nonfarm livelihoods (Hazell et al., 2007). While the majority of the Ethiopian population resides in Oromia (33 million) and Amhara (27 million), more than a third of Ethiopians live elsewhere. This group may not benefit sufficiently from the macro-level improvement of agricultural production and productivity to grow themselves out of poverty. Safety net spending was prioritized in Ethiopia in the early 2000s. This spending was mainly channeled as food aid and cash transfers through two large programs: the Household Asset Building Programme and the Productive Safety Nets Programme (World Bank, 2008; FAO, 2014). However, this spending has since decreased (Rohne Till, 2021). Given that a large share of Ethiopians may be too poor to be successful commercial farmers, future economic growth and poverty reduction will likely require government interventions to support agricultural productivity growth and protect poor rural households (Abro & Alemu, 2014).

Agricultural and Economic Growth in the Twenty-First Century

The main period under investigation in this book’s empirical section (Part III) is 2002–2010. In this period, real GDP per capita growth averaged 5.9%, agricultural production of all grains (cereals, pulses, and oilseeds) grew at an annual average rate of 8.1%, and agricultural public spending as a share of total spending averaged 18.9% (CSA, 2002–2010; Feenstra et al., 2015; ReSAKSS, 2021). In terms of agricultural policies, the commitment to the agricultural sector was particularly pronounced during 2002–2015. This strengthened commitment followed a reformulation of and recommitment to ADLI in 2002 and continued until the central role of agriculture was downplayed in the Growth and Transformation Plan II in 2015 (MOFED, 2002, 2015).

The substantial increase in agricultural production has also been accompanied by improvements in agricultural productivity, both in land and in labor. In terms of land, the average cereal yield increased from 0.97 metric tons/ha in 1994 to 1.36 in 2002, 1.83 in 2010, and 2.83 in 2019 (FAOstat, 2021). In terms of labor productivity, apart from the drought in 2003, the 2002–2010 period saw strong labor productivity increases in agriculture, although the industrial sector has seen the most rapid labor productivity growth in recent years (Fig. 5.3). While there is no consensus on the specific mechanisms that have driven the increases in agricultural production and productivity, several studies suggest that high government spending on agriculture has been an important contributing factor (World Bank, 2016; Bachewe et al., 2018; Grabowski, 2020; Rohne Till, 2021). In addition, the period has also seen rather substantial improvements in infrastructure, albeit from low levels (Minten et al., 2014; World Bank, 2016). These improvements may have spurred the agricultural transformation by increasing (product and factor) market connectivity. Moreover, they may have supported the development of time-sensitive agricultural sub-sectors, such as flowers and fruits.

Fig. 5.3
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Labor productivity growth per sector (annual % change of value added per worker). (Source: Author’s calculation based on World Bank (2021))

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The economic and agricultural growth in the last 20 years has been accompanied by structural change in production but not in employment. The share of agricultural value added to total value added decreased to 41% in 2011 and 34% in 2019, while employment remain high at 73% in 2011 and 66% in 2019 (Table 5.2). The expansion of the industrial sector that can be seen in Table 5.2 is due to a construction boom across the country, largely financed by government spending (World Bank, 2016; PSI, 2020). The service sector has also expanded significantly. It is a highly heterogeneous sector, including both high-tech, capital-intensive enterprises such as Ethiopian Airlines and the financial sector as well as petty traders (PSI, 2020).

Table 5.2 Sector composition in Ethiopia, 1961–2019 (%)
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Similar patterns of structural transformation have been observed in many of the countries in SSA currently undergoing economic growth. This trend notably differs from the historically important role of the manufacturing sector in both output and employment during economic growth. In the past, the manufacturing sector has been a very successful engine of growth for low-income countries; it is a technologically dynamic sector producing tradable goods that can also provide employment to a significant share of the population (Rodrik, 2013). However, in Ethiopia and in other SSA countries, very little labor has been absorbed into the sector. This may be due to the advent of labor-saving automation and high-skill technologies used in manufacturing, which have made it difficult to produce internationally competitive manufacturing goods based on low-cost labor (Rodrik, 2016, 2018). As a result, the manufacturing sector in SSA has not been able to generate a high share of formal employment in Ethiopia and other countries in SSA. This stands in stark contrast to the development of, for example, the fast-growing East Asian economies (Diao et al., 2021).

The nature of the structural transformation in Ethiopia is likely linked to the economy’s productivity patterns. On the one hand, labor productivity growth has been higher in the industrial sector than in other sectors in Ethiopia since 2011 (Fig. 5.3) and has persistently been substantially higher than in agriculture (Fig. 5.4). On the other hand, the productivity levels both in the industrial sector overall, and specifically within the manufacturing sector, are low when compared with those of other low-income countries (PSI, 2020). While some observers are optimistic that the Ethiopian manufacturing sector may come to play a larger role in employment, output, and exports going forward (Oqubay, 2018), this has not yet been the case (Diao et al., 2021).

Fig. 5.4
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Labor productivity per sector (value added per worker in constant 2010 US dollars). (Source: Author’s calculation based on World Bank (2021))

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A final note on the role of prices and inflation is needed to contextualize the present research’s empirical study. The study period saw a highly volatile price environment, with inflation ranging from 44% in 2008 during the global price hike to deflation of −8.2% in 2001 following good harvests (Durevall et al., 2013; World Bank, 2021). During the global food price spike of 2008 (and the subsequent spikes in 2010/2011 and 2012), Ethiopia was one of the most affected countries. This marked a clear shift from earlier periods, when Ethiopia had low inflation apart from a limited number of war- or drought-induced inflation periods. The severe impact of the 2008 global price hike on Ethiopia’s inflation was likely linked to both external (Durevall et al., 2013) and internal causes (Admassie, 2014). Food prices are very closely linked to inflation in Ethiopia and are highly sensitive to changes in the supply–demand balance, as both supply and demand are very price-inelastic in the short run (Pinstrup-Andersen, 2014; Admassie, 2014). In the economic multiplier model that this research applies in Part III, prices are treated in current prices in each year, and as such reflect the situation as it was that one year. However, as prices are fixed in the short run (in each year) but allowed to change over the period of analysis (between the years), the study considers how inflation has affected the economic structure over the period of study without the price changes distorting the analysis.

The above contextualization of some key elements of Ethiopia’s economic, political, and agricultural history has highlighted the particular setting in which the empirical findings of Part III should be understood. While the book aims to provide insights that could be relevant to other low-income countries in the initial phase of economic development, any such lessons should be drawn with caution. Current development trajectories are unlikely to repeat past experiences; all economies will not ultimately mirror those of now-rich countries. Therefore, rather than providing actionable “lessons” or a roadmap for development, the research seeks to offer evidence on the complexity of economic change and some specific elements of this complexity in the Ethiopian case.