Firm size and structural change: A case study to Ethiopia

I use firm-level census data to study changes in the structure of Ethiopia's manufacturing sector between 1998 and 2008. Over this period, aggregate manufacturing value-added grew at the same rate as GDP, the number of manufacturing firms more than doubled, and average firm size fell by more than 40%. I highlight substantial heterogeneity in economic performance across firms, and emphasise a strong association between firm size and value-added per worker. I find that 29% of the value-added size gap can be attributed to differences in product selection across small and large firms. I find no systematic difference in the output price charged by small and large firms for a given product. I therefore attribute the remaining value-added size gap to a higher level of physical labour productivity in large than in small firms. I conclude that small and large firms in Ethiopia use quite different technologies to produce similar products, and that an increase in the number of large firms would raise value-added per worker and ultimately GDP per capita in the country.