Publication: A Rural-Urban Comparison of Manufacturing Enterprise Performance in Ethiopia
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Published
2010
ISSN
0305750X
Date
2012-03-30
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Manufacturing enterprises in rural and urban Ethiopia are compared to examine how location and investment climate characteristics affect performance. Urban firms are larger, more capital intensive and have higher labor productivity than rural firms, yet there is no strong evidence of increasing returns to scale. The hypothesis that firms in rural towns have the same average total factor productivity as urban firms is not rejected; however, firms in remote rural areas are less productive. Rural firms grow less quickly than urban firms. These results can partly be attributed to differences in the quality of infrastructure, access to credit and transportation costs across rural and urban areas. Since rural firms operate in a business environment that is very different from its urban counterpart, lessons derived from urban investment climate surveys cannot immediately be transferred to rural areas.
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Publication Mind the Gap? A Rural-Urban Comparison of Manufacturing Firms(2009-06-01)This paper compares and contrasts the performance of rural and urban manufacturing firms in Ethiopia to assess the impact of market integration and the investment climate on firm performance. Rural firms are shown to operate in isolated markets, have poor access to infrastructure and a substantial degree of market power, whereas urban firms operate in better integrated and more competitive markets, where they have much better access to inputs. Fragmentation may also help explain why urban firms are much larger, much more capital intensive and why they produce much more output per worker. Capital intensity and labor productivity are strongly correlated with firm size. Manufacturing technology choice does not vary strongly across space and increasing returns to scale are modest at best, suggesting that rural-urban differences in output per worker are predominantly driven by differences in capital intensity and Total Factor Productivity (TFP). The average TFP of firms in rural towns is much higher than that of rural firms in remote areas, but small firms in rural towns are not significantly less productive than small firms in other urban areas. A key finding of the paper is that market fragmentation and investment climate constraints impair the growth of the rural non-farm sector. Whereas urban firms exhibit a healthy dynamism, rural firms are stagnant and lack incentives to invest. Paradoxically, limited local demand due to market fragmentation is the most pressing constraint for rural firms, even though they face more severe supply-side constraints than urban firms. Promoting market towns in Ethiopia might be an effective means of capitalizing on the gains from market integration.Publication Nonfarm Microenterprise Performance and the Investment Climate : Evidence from Rural Ethiopia(World Bank, Washington, DC, 2008-03)This paper uses uniquely matched household, enterprise and community survey data from four major regions in rural Ethiopia to characterize the performance, constraints and opportunities of nonfarm enterprises. The nonfarm enterprise sector is sizeable, particularly important for women, and plays an important role during the low season for agriculture, when alternative job opportunities are limited. Returns to nonfarm enterprise employment are low on average and especially so for female-headed enterprises. Women nevertheless have much higher participation rates than men, which attest to their marginalized position in the labor market. Most enterprises are very small and rely almost exclusively on household members to provide the required labor inputs. Few firms add to their capital stock or increase their labor inputs after startup. Local fluctuations in predicted crop performance affect the performance of nonfarm enterprises, because of the predominant role played by the agricultural sector. Enterprise performance is also affected by the localized nature of sales and limited market integration for nonfarm enterprises. The policy implications of these and other findings are discussed.Publication Small Enterprise Growth and the Rural Investment Climate: Evidence from Tanzania(2010)This paper analyzes characteristics of nonfarm enterprises, their employment growth patterns, and constraints in doing business in rural Tanzania. Using unique survey data, we describe a low-return sector struggling to compete in a challenging business environment. However, about one-third of rural enterprises are growing fast. Most enterprises engage in agricultural trade. Due to a rapidly growing agricultural sector in recent years, limiting demand-side constraints, rural enterprise constraints in Tanzania mainly operate from the supply-side, suggesting that in particular access to finance, road infrastructure and rural cell phone communication is associated with employment growth. A major finding is that subjective and objective measurements of business constraints are broadly comparable. We discuss a number of factors that would help to unleash the full potential of private sector-led growth in rural areas. Marginal improvements of the rural investment climate matter for growth.Publication Small Enterprise Growth and the Rural Investment Climate : Evidence from Tanzania(World Bank, Washington, DC, 2008-07)This paper analyzes characteristics of nonfarm enterprises, their employment growth patterns, and constraints in doing business in rural Tanzania. Using unique survey data, the authors describe a low-return sector struggling to compete in a difficult business environment. However, about one-third of rural enterprises are growing fast. Most enterprises engage in agricultural trade. Due to a rapidly growing agricultural sector in recent years, limiting demand-side constraints, rural enterprise constraints in Tanzania mainly operate from the supply side. This suggests that, in particular, access to finance, road infrastructure, and rural cell phone communication is correlated with employment growth. A major finding is that subjective and objective measurements of business constraints are broadly comparable. The authors discuss a number of factors that would help to unleash the full potential of private sector-led growth in rural areas. The findings show that marginal improvements in the rural investment climate matter for growth.Publication What Have We Learned from a Decade of Manufacturing Enterprise Surveys in Africa?(Oxford University Press on behalf of the World Bank, 2006-08-02)In the early 1990s the World Bank launched the Regional Program on Enterprise Development (RPED) in several African countries, a key component of which was to collect data on manufacturing firms. The data sets built by these and subsequent enterprise surveys in Africa generated considerable research. This article surveys the research on the African business environment, focusing on risk, access to credit, labor, and infrastructure, and on how firms organize themselves and do business. It reviews the research on enterprise performance, including enterprise growth, investment, and exports. The article concludes with a discussion of policy lessons.
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