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ETHIOPIA’S Public Disclosure Authorized GREATRUN the Growth Acceleration and How to Pace It 2014 Public Disclosure Authorized Public Disclosure Authorized

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ETHIOPIA’S Public Disclosure Authorized GREATRUN the Growth Acceleration and How to Pace It 2014 Public Disclosure Authorized Public Disclosure Authorized 99399 ETHIOPIA’S Public Disclosure Authorized GREATRUN The Growth Acceleration and How to Pace It 2014 Public Disclosure Authorized Public Disclosure Authorized 2004 Public Disclosure Authorized ETHIOPIA’S GREAT RUN THE GROWTH ACCELERATION AND HOW TO PACE IT February, 2016 iii TABLE OF CONTENTS ACKNOWLEDGEMENTS ............................................................................................................................... vii LIST OF ABBREVIATIONS .............................................................................................................................. ix EXECUTIVE SUMMARY .................................................................................................................................. xi PART A: EXPLAINING GROWTH ...................................................................................................................1 THE GROWTH ACCELERATION ...................................................................................................................3 1.1 Recent Economic Growth in Perspective ............................................................................................................3 1.2 Rapid Growth in the Context of Development Progress .....................................................................................3 1.3 Proximate Growth Determinants ........................................................................................................................6 ECONOMIC STRATEGY — ‘THE ETHIOPIAN WAY’ ...............................................................................13 2.1 Main Elements of Economic Strategy ...............................................................................................................13 2.2 Did Ethiopia Fo he Insights of ‘The Growth Commission’? ..............................................................................16 2.3 Fast Growing Non-resources Rich African Peers ...............................................................................................16 2.4 An East Asian Strategy?.....................................................................................................................................20 EXPLAINING GROWTH: STRUCTURAL, EXTERNAL AND STABILIZATION FACTORS .................23 3.1 Introduction .....................................................................................................................................................23 3.2 Explaining Ethiopia’s Recent Growth Performance ...........................................................................................24 Annex 3.1 Methodology .........................................................................................................................................30 Annex 3.2 Model Robustness .................................................................................................................................35 GROWTH AND STRUCTURAL CHANGE ..................................................................................................39 4.1 Introduction .....................................................................................................................................................39 4.2 Structural Change in Ethiopia ..........................................................................................................................41 4.3 The Rising Services Sector ................................................................................................................................46 4.4 Ethiopia’s Experience in the International Context ...........................................................................................47 4.5 A Regional Perspective and Potential Implications for Ethiopia ........................................................................49 Annex 4.1 Selected Structural Change Indicators ....................................................................................................54 DRIVERS OF AGRICULTURAL GROWTH ..................................................................................................57 5.1 Introduction .....................................................................................................................................................57 5.2 The Growth of Agriculture 2004–2014 ............................................................................................................58 iv ETHIOPIA’S GREAT RUN – THE GROWTH ACCELERATION AND HOW TO PACE IT 5.3 Land Intensification and Adoption of Improved Agricultural Technologies ......................................................60 5.4 Drivers for Change ...........................................................................................................................................63 5.5 Evidence on Changes in Drivers .......................................................................................................................65 5.6 Conclusion and Further Challenges ..................................................................................................................73 PART B: SUSTAINING GROWTH .................................................................................................................77 MANAGING GROWTH EXPECTATIONS ...................................................................................................79 6.1 Introduction .....................................................................................................................................................79 6.2 Growth Accelerations: The International Experience.........................................................................................79 6.3 Growth Tailwinds and Headwinds ....................................................................................................................81 6.4 Cyclical Factors .................................................................................................................................................83 6.5 Benchmarking ..................................................................................................................................................83 6.6 Scenario Analysis ..............................................................................................................................................86 6.7 Summary ..........................................................................................................................................................89 ETHIOPIA’S FINANCING CHOICE: PUBLIC INFRASTRUCTURE OR PRIVATE INVESTMENT? ..91 7.1 Introduction .....................................................................................................................................................91 7.2 Is Ethiopia’s Current Level of Public Infrastructure Investment Optimal? .........................................................91 7.3 Firm-level Constraints: Infrastructure or Credit?...............................................................................................95 7.4 Domestic Finance Reform ................................................................................................................................97 7.5 Complementary Infrastructure Financing Options .........................................................................................100 Annex 7.1 Public and Private Investment: Model, Empirical Results and Calibration ...........................................107 GROWTH AND STRUCTURAL REFORMS ..............................................................................................113 8.1 Introduction ...................................................................................................................................................113 8.2 Trends and Status in Structural Reforms .........................................................................................................114 8.3 The Potential Growth Impact of Reforms .......................................................................................................117 8.4 Productivity Impacts of Services Trade Liberalization ......................................................................................124 8.5 Reform Sequencing: Best Practice and Ethiopia’s Experience ..........................................................................126 8.6 Reform Risks ..................................................................................................................................................127 8.7 Quo Vadis Ethiopia? .......................................................................................................................................129 8.8 Growth Model Sustainability Monitoring .......................................................................................................130 Annex 8.1 Methodology for Estimating Growth Impact of Reforms .....................................................................134 Annex 8.2 Robustness Checks ..............................................................................................................................135 Annex 8.3 Estimating the Impact of Services Inputs Quality on Firms’ Productivity ...........................................138 REFERENCES .................................................................................................................................................141 LIST OF FIGURES Figure 1.1: Recent Economic Growth in Perspective.................................................................................................4
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