The Impact of Sector-Specific Industrial Policy on Manufacturing Firm Performance: Quasi-experimental Evidence from Ethiopian Chemical Industries

This study evaluates the impact of a sector-specific industrial policy program on the performance of Ethiopian chemical manufacturing firms using a quasi-experimental design. The data for the study come from firm-level field surveys and administrative sources. To account for heterogeneity and selection bias due to observable and unobservable factors, we employ a range of empirical strategies, including quantile regression, propensity score matching (PSM), endogenous switching regression (ESR), and generalized propensity score (GPS) models. We also used alternative estimation methods that fit our data and sample size. Our findings show that the program has a positive and significant effect on productive capacity utilization of beneficiary firms, while there is no evidence of any impact on employment generation. The results show that the program’s beneficiary firms utilized an actual productive capacity of 4.5–7.6% more than non-beneficiaries. We conclude that the program has mixed effects on the performance of the domestic chemical manufacturing firms. This study contributes to the scant literature that provides empirical evidence that informs public policy decisions in the context of developing countries.