Economic Policy and Structural Transformation in Ethiopia

Ethiopia has advanced from the strong economic recovery of the 1990s to rapid growth since the early 2000s. The underlying economic structure exhibits only modest changes as industrialization has yet to take root. This chapter examines the link between policy choices, economic growth, and transformation under the Derg and EPRDF regimes. While policy reforms and public expenditure on infrastructure and basic services since 1991 have triggered rapid growth by reducing major inefficiencies, structural transformation requires action to boost productivity, alter the structure of demand, and build productive capacity. Productivity remains below that of other developing countries both in the production of food and agricultural raw materials. Manufacturing firms exhibit lacklustre levels of investment while import penetration rates continue to rise. Inequality of asset ownership in urban areas, and the weak response of asset positions to income growth in rural areas suggest challenges in raising household demand for non-food consumption items.