Modern economic growth hinges on structural transformation (Sen, 2023) that primarily involves the movement of workers out of agricultural activities to industries and services. While this pattern of development has been observed for industrialised countries, it remains less clear whether low-income countries, particularly in sub-Saharan Africa, are following a similar development trajectory. In Ethiopia, the output share of agriculture has decreased from 55.5% in 2010 to 32% in 2018 while the share of industrial sector increased from 11.4% to 28.9% (NBE, 2022). Similarly, agricultural employment decreased from 75% to 65%, while employment in industries increased from 9% to 13%. The substantial decline in the output and employment share of agriculture suggests a form of structural shift in the Economy. However, Ethiopia is still among the structurally underdeveloped countries in Africa (ACET, 2021), which raises the question of whether the economy is undergoing structural transformation and whether the government should continue investing in agriculture.
This project aims to evaluate the effect of a key agricultural policy – Agricultural Commercialisation Cluster (ACC) program, on structural transformation in Ethiopia. Specifically, the study examines the effect of ACC intervention projects on (1) productivity of priority commodities and family labour, (2) diversification of rural income sources and employment opportunities, and (3) commercial orientation of farm production, (4) firm performance (and composition of exports), and (5) urbanisation. To estimate the policy effect, the project compares the outcomes of interest under the agricultural commercialisation cluster program and districts without the program over time in a generalised difference-in-difference design. The project constructs a noble panel data set by combining the Agricultural Sample Survey (AgSS), Large and Medium Manufacturing Industries Survey (LMMIS), Business Registration and Licensing records, and remote sensing data with georeferenced geographic and priority crop clusters.
This project joins a strand of the recent research (Blakeslee et al, 2023; Gollin et al, 2021; Bustos et al, 2020; Bustos et al, 2016; Gollin et al., 2002; Gollin et al., 2021) that theoretically and empirically examines the significance of agriculture for structural transformation and modern economic growth. It contributes along two lines. Against the considerable knowledge gap on the factors that drive the process of structural transformation (Gollin, 2021), this project provides fresh evidence on the role of agricultural productivity gains for structural transformation based on the ACC program. Against the substantial heterogeneity in the role of agriculture in stimulating structural transformation (Gollin, 2021), this project provides insights on the differential effect of agricultural productivity gains across local contexts, time, and crop-sub-sectors. Hence, the findings will inform policy making regarding agricultural transformation, structural change, and industrial development in Ethiopia by providing evidence of how best industrial clustering can be combined with agro-clusters to sustain productivity growth and achieve economic transformation.
