Working Paper 303 - Industrial Policy and Late Industrialisation in Ethiopia

Ethiopia has emerged as one of the fastest-growing economies in Africa in the early twenty-first century. Despite this rapid growth, however, structural transformation of the economy remains the country’s central challenge. This paper reviews the origins of Ethiopia’s industrialization and industrial policymaking process in the 20th century. The Ethiopian government has pursued developmentalism and practiced an active industrial policy since the early 2000s. However, a review of industrial policies in various priority sectors shows that the outcome has been uneven across sectors, indicating the importance of the strong interaction between industrial structure, linkage dynamics, and politics/political economy for the evolution and effectiveness of an industrial policy. After examining the fundamental weakness in Ethiopia’s economic structure, this paper will illustrate why and how industrial policy must focus on manufacturing and exports to generate structural transformation and accelerate catch-up. The Ethiopian experience shows that an activist industrial policy goes hand in hand with an activist state.JEL classification: L16, L50, L52, 014, 025Keywords: Ethiopia, structural transformation, industrialization, industrial policy, policy learning, activist state, linkage effects, industrial parks.