Chinese Imports and Industrialization in Africa : Evidence from Ethiopia

The rise of China in the global economy has been linked with negative impacts on employment across many high- and middle-income countries. However, evidence for African countries is limited. This paper investigates the causal relationship between Chinese imports and manufacturing employment in Ethiopia. Imports may harm domestic firms through a revenue effect (lower market shares) or benefit them, indirectly if competition spurs innovation or directly through access to better quality or cheaper inputs. The analysis shows that a one unit increase in import penetration leads to a 15.2 percent increase in industry employment. The inputs effect is disentangled from the other two effects by decomposing total Chinese imports by their end-use category using input-output tables. The evidence shows that imported intermediate inputs are driving the employment gains. The findings are consistent with the idea that employment gains are a result of productivity gains and increases in capacity utilization. These employment gains appear to benefit large firms and labor-intensive industries disproportionately.