The Small, the Young, and the Productive: Determinants of Manufacturing Firm Growth in Ethiopia

Abstract

This study examines the relationships between firm growth and firm size, age, and labor productivity, using annual census-based panel data on Ethiopian manufacturing firms. The study explicitly addresses the ongoing statistical concerns in firm growth models such as sample censoring, regression to the mean, and unobserved heterogeneity. Our empirical results indicate that firm growth decreases with size. Smaller firms have faster rates of growth than larger firms, even after compensating for their higher attrition rates. The negative relation between age and growth predicted by the learning model is found to apply only to younger firms. Labor productivity affects firm growth positively, which indicates that there is a market selection process at work during the period of economic reforms in Ethiopia.