The small, the young, and the productive: Determinants of manufacturing firm growth in Ethiopia

An annual census-based firm-level data of Ethiopian manufacturing is used to investigate the relationship between firm growth and firm attributes such as size, age, and productivity. The pattern of firm growth and the exit rate by age and size category, mobility of firms across size class, and the size distribution of firms have also been examined. Then, comparison and estimation of various econometric models such as censoring, regression to the mean and unobserved firm heterogeneity were also addressed. The data shows the following results: the mobility of firms across size distribution in Ethiopia is generally limited, and the size distribution remains skewed; firm growth decreases with size and is not affected by the transitory fluctuations or measurement errors in size, corrections for sample censoring, or by controlling for unobserved firm heterogeneity; the relation between growth and age is mixed; labor productivity affects firm growth positively, implying that more productive firms grow faster; firm growth is also affected by other factors including capital intensity, location of the firm, and type of ownership. The scope of the study is limited to the formal sector, and it remains to be seen if it implies to the microfirms. Future work is required to address this issue.