Industrial policy, local firm growth paths, and capability building in low-income countries: lessons from Ethiopia’s floriculture export sector

Abstract

The industrial policy literature has made important contributions to understanding how to catalyze industrialization, but it tends to focus more on the industrial policies required to incentivize learning than on studying firm-level learning dynamics and investments in technological capabilities. Furthermore, global value chain studies on export sectors in low-income countries rarely consider whether local firms are part of broader business groups and if so, how that position within business groups affects local firms’ business strategies regarding the global supply chain in question as well as investments outside it. This article examines local firms’ investments in a new export industry, and they are shaped by dynamics linked to their family business groups, industrial policies, and the wider national economic and political contexts of low-income countries. It does so through a case study of Ethiopia and the emergence of its floriculture export industry. The article explains firm-level motivations in acquiring knowledge and building capabilities as well as their export trajectories and firm growth paths and how they are shaped by owners’ decisions related to the overall business group. It argues that industrial policies need to consider not only the existing capabilities, organizations, and networks of local firms but also tailor industrial policies to the potential of the family business groups to drive capability building in new industries.