The Effect Ofimproved Productivity Of The Manufacturing Industry On The Ethiopian Economy A Computable General Equilibrium Analysis

Ethiopia's manufacturing industry is at the onset of development though there are recentrnupsurges in the number of firm s. This study examines the effect of productivityrnimprovement of the manufacturing sector on the macro economy, sectoral output, factorrnand household income and welfare of households. In order to investigate this impact, thernstudy utilized the recursive dynamic computable general equilibrium (CGE) model. Thernrecently updated 2005/06 Ethiopian SAM was used to calibrate the CGE framework.rnThree policy simulations of high, medium and low TFP growth rates were simulated onrntextile, leather, agro processing, and non-agro processing and overall manufacturingrnactivities.rnThe study demonstrated that the manufacturing sector is a key driver of economic growthrnin particular; the findings suggest that productivity increase in textile, agro processing,rnand non-agro processing and overall manufacturing sector largely increases real GDP andrnsectoral outputs. Moreover, both rural and urban households are well-off in all the policyrnsi mulations. However, increasing the TFP of the leather sector alone showed nornsignificant change on the macro variables like; real GDP, absorption, privaternconsumption and investment. It also resulted in welfare loss to all households except ruralrnpoor. The study further extends its recommendation for Ethiopia to develop a strongrnindustrial policy aimed towards promoting both agro and non-agro processing industries

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