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Clustering as an organizational response to capital market inefficiency: Evidence from handloom enterprises in Ethiopia

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  • Ali, Merima
  • Peerlings, Jack
  • Zhang, Xiaobo

Abstract

Using data from microenterprises of the handloom sector in four regions of Ethiopia, the paper shows that clustering, through specialization and division of labor, can lower entry barriers by reducing the initial capital required to start a business. This effect is found to be significantly larger for microenterprises investing in districts with higher levels of capital market inefficiency, indicating the importance of clustering as an organizational response to a constrained credit environment. The findings highlight the importance of cluster-based industrial activities as an alternative method of propagating industrialization when local conditions do not allow easy access to credit.

Suggested Citation

  • Ali, Merima & Peerlings, Jack & Zhang, Xiaobo, 2010. "Clustering as an organizational response to capital market inefficiency: Evidence from handloom enterprises in Ethiopia," IFPRI discussion papers 1045, International Food Policy Research Institute (IFPRI).
    • Handle: RePEc:fpr:ifprid:1045
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    Cited by:

    1. Harris, John, 2014. "The Messy Reality of Agglomeration Economies in Urban Informality: Evidence from Nairobi’s Handicraft Industry," World Development, Elsevier, vol. 61(C), pages 102-113.
    2. Owoo, Nkechi S. & Naudé, Wim, 2014. "Non-Farm Enterprise Productivity and Spatial Autocorrelation in Rural Africa: Evidence from Ethiopia and Nigeria," IZA Discussion Papers 8295, Institute of Labor Economics (IZA).
    3. Ali, Merima & Peerlings, Jack H.M., 2011. "Farm Households Entry and Exit Into and From Non-farm Enterprises in Rural Ethiopia: Does Clustering Play a Role?," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114220, European Association of Agricultural Economists.

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