Unlocking Productive Entrepreneurship in Ethiopia: Which Incentives Matter?

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1 N o November 2010 Unlocking Prodcive Enreprenerhip in Ehiopia: Which Incenive Maer? Zzana Brixiova and Emera Aaminew

2 Ediorial Commiee Kamara, Abdl B. (Chair) Anyanw, John C. Aly, Haan Yoef Rajhi, Taofik Vencaachellm, Déiré Coordinaor Salami, Adeleke Mommi, Ahmed Copyrigh 2010 African Developmen Bank Angle de l avene d Ghana e de re Pierre de Coberin e Hédi Noira BP TUNIS Belvédère (Tniia) Tél: ax: Righ and Permiion All righ reerved. The ex and daa in hi pblicaion may be reprodced a long a he orce i cied. Reprodcion for commercial prpoe i forbidden. The Working Paper Serie (WPS) i prodced by he Developmen Reearch Deparmen of he African Developmen Bank. The WPS dieminae he finding of work in progre, preliminary reearch rel, and developmen experience and leon, o encorage he exchange of idea and innovaive hinking among reearcher, developmen praciioner, policy maker, and donor. The finding, inerpreaion, and conclion expreed in he Bank WPS are enirely hoe of he ahor() and do no necearily repreen he view of he African Developmen Bank, i Board of Direcor, or he conrie hey repreen. Working Paper are available online a hp:/www.afdb.org/ Correc ciaion: Brixiova Zzana and Aaminew Emera (2010), Unlocking Prodcive Enreprenerhip in Ehiopia: Which Incenive Maer? Working Paper Serie N 116, African Developmen Bank, Tni, Tniia.

3 ARICAN DEVELOPMENT BANK GROUP Unlocking Prodcive Enreprenerhip in Ehiopia: Which Incenive Maer? Zzana Brixiova and Emera Aaminew (1) Working Paper No. 116 November 2010 (1) Zzana Brixiova and Emera Aaminew are, repecively Principal Reearch Economi a he African Developmen Bank, Tniia and Economi, he Ehiopian Economic Policy Reearch Inie and Ehiopian Economic Aociaion, Ehiopia. The ahor are graefl o Jan Babecky, Jorgen D. Hanen, Beyongj Jeong, Haile Kibre, Ron Leng, Wim Nadé, Léonce Ndikmana, Abebe Shimmele, and Andrea Wörgöer for helpfl ggeion and commen. Special hank go o Abdl Kamara and Alber Mafire for encoragemen o pre hi projec. Earlier verion of he paper were preened a he 4h African Economic Conference (Addi Ababa), he 5h IZA/World Bank Conference on Employmen and Developmen (Cape Town) and eminar a he AfDB Reearch Deparmen, he CERGE-EI and he Univeriy of Sohern Denmark. Zzana Brixiova graeflly acknowledge financial ppor from he lbrigh Program for reearch a he Addi Ababa Univeriy (Sepember March 2008) where hi paper ared. Correponding addre:

4 Abrac: Tweny year afer he lanch of marke reform, prodcive enreprenerhip and vibran mall and medim-ized enerprie (SME) in Ehiopia remain limied, he recen growh acceleraion nowihanding. Thi paper fir develop a model of enreprenerial ar p in an economy wih fricion in he prodc and labor marke and a large informal ecor, which characerize he Ehiopian iniional landcape. I hen examine everal miigaing policie ha cold improve he bopimal ocome. The main finding are ha earch bidie wold be more effecive in encoraging enreprenerial ar p han wage bidie, alhogh fewer enreprener may chooe o operae in he formal ecor han nder he laer. Regarding he reform agenda, prioriy hold be p on removing rigidiie and eablihing propery righ. To be effecive, boh ype of bidie hold have a ime limi and be phaed o wih reform of he bine environmen, renghened propery righ, and improved labor marke. Keyword: Model of enreprenerial ar p, labor marke, fricion, informal ecor JEL Claificaion: L26, J24, J48, O17.

5 1. Inrodcion Policymaker in Sb-Saharan Africa (SSA) are well aware of he poiive role ha prodcive enreprenerhip and mall and medim-ized enerprie (SME) can play in developmen of heir economie. Prodcive SME can creae job, broaden he ax bae, diverify rik, innovae and adop new echnology. The role of SME a engine of growh wa hown by he powar recovery in Aria and Germany and by he diverging pah of he Cenral Eropean and Balic conrie from hoe of he CIS conrie, among oher. In raniion economie, he prodciviy gain, employmen, and he convergence o he income level of he EU-15 conrie have hinged on a dynamic privae ecor, and epecially new firm. SME have been one of he main driving force in China recen growh. Enreprenerhip and SME have received increaed inere in he conex of he global financial and economic crii, wih developing and emerging marke conrie earching for oher orce of growh han expor and DI. A conrie more inegraed ino he global economy were hi everely by he crii, heir policy maker rned aenion oward domeic and regional demand o diverify rik. The crii ha raied he role of SME a he poenial driver of rcral change, employmen, and growh. I howed ha ae ha an imporan role o play in developmen and ndercored eflne of well-argeed governmen inervenion. Afer coming o power in 1991, he new Ehiopian governmen lanched marke reform, wih a view o develop a vibran privae ecor and SME. Unil recenly, however, he economy wa dominaed by low prodciviy firm moly in he informal ecor, while he highly prodcive SME cold be fond only in a few region and ecor. The lack of good (prodcive and well-paid) privae job dicoraged worker from acqiring kill, a payoff for doing o remained low. i In rn, he lack of killed worker conrained firm choice of aciviie. On he more poiive ide, hope ha he privae ecor and SME wold conribe o growh and employmen have gradally ared o maerialize in eleced ecor (epecially ervice) ince mid Sill, aide he recen rapid growh driven moly by pblic infrarcre invemen, agriclre and a few b-ecor in ervice, he prodcive SME have remained limied, epecially in manfacring. The majoriy of he conry i in a vicio circle of low prodciviy, lowpaid job, and povery. Developing frher he privae ecor and prodcive SME i h a key policy challenge. Thi paper develop a model of enreprenerial ar-p in an economy wih fricion in he labor and prodc marke and wih a izeable informal ecor, a i he cae in Ehiopia. The model bild on everal rand of lierare. ir, i exend he framework of Brixiova, Li, and Yoef (2009) for raniion economie o he cae of a low income conry by modeling: (i) he imperfec compeiion (and informaion) in he killed worker labor marke; (ii) he fricion in he prodc marke; and (iii) firm deciion o operae in he formal or he informal ecor. i Thoe who acqire kill ofen emigrae, h conribing o he brain drain. 5

6 Second, bilding on Snower (1996), he model how ha he labor marke failre, inclding imperfec informaion, lead o bopimal ocome -- epecially in low-income conrie ch a Ehiopia where exchange in he killed labor marke are pare and iniion nderdeveloped. The large informal ecor and he lack of iniion blr enreprener informaion abo available worker and dicorage hem from earch, and vice vera. Togeher wih he rigid bine climae, hey impede he highly-prodcive privae ecor employing killed labor. The model foce on creaion of new firm and he informal ecor, which characerize Ehiopia and oher low-income conrie. ii inally, he framework differ from ha of Gelb e al. (2008) a i conider how reglaion, inclding weak propery righ, inflence firm deciion o formalize. The model reflec everal ylized fac of he Ehiopian rban labor marke and examine which policie help develop he highly prodcive formal SME ecor. iii In m, he model in hi paper foce on ar-p of highly-prodcive privae firm in he formal ecor, a heir abence i a key conrain o prodciviy and job growh in Ehiopia. The paper i organized a follow. Secion 2 give ylized fac on he SME ecor and he rban labor marke in Ehiopia, inclding new empirical eimae of he informal ecor. Secion 3 preen he model, while Secion 4 examine he impac of everal policie on SME ar p. Secion 5 conclde. 2. Sylized ac on SME and he Urban Labor Marke in Ehiopia Since Ehiopia deparre from he cenral planning, i economy ha had niqe feare. The predominan role of he ae ecor in he non-agriclral op, low privae job creaion, and high nemploymen make i akin o an early-age raniion economy. A he ame ime, Ehiopia i one of he poore conrie in he world, wih: (i) a large and daliic informal ecor; (ii) high and almo conan hare of agriclre in op; (iii) pervaive labor marke fricion, inclding imperfec informaion; and (iv) a rigid bine environmen. The ecion below highligh main ylized fac abo SME and he rban labor marke. iv ii Thi framework differ from ha of Snower (1996), who foced on vacancie in exiing firm in he formal ecor in advanced economie. iii A more echnical verion of he model, which ilize he dynamic programming approach, i in Brixiova (2010). Thi paper, however, addree a differen e of ie. In addiion o carrying o new empirical eimae of he informal ecor in Ehiopia, he heoreical framework in hi paper model: (i) worker deciion o acqire kill; (ii) enreprener deciion o open heir firm in eiher he formal or he informal ecor; and (iii) co-benefi comparion of bidizing enreprener earch and bidizing wage of killed worker. iv Thi paper foce on rban labor marke. Uilizing daa from ohern Ehiopia, Kimhi (2010) how ha encoraging rral enreprenerhip may be favorable for boh income growh and diribion. 6

7 2.1 Limied ormal Privae Secor The role of he privae ecor in he Ehiopian economy ha evolved in everal age. v Economic policy of he ociali Derg regime dring wa baed on cenral planning. Privae propery wa naionalized and privae ecor aciviie dicoraged. When he new governmen embarked on marke reform in 1991, i aimed a redcing breacraic procedre and encoraging a rapid growh of he privae ecor. Tweny year laer, however, he role of he prodcive privae ecor remain rericed o everal excepional ecor (leaher, flower) and i limied oherwie. Progre wih developing manfacring in pariclar ha agnaed. Sbeqenly, he hare of he ae ecor in indrial op ha been arond 50 percen ince 2000, afer a decline from 80 percen in he mid While he majoriy of SME are privae, very mall firm predominae and he highly prodcive formal SME ecor i h nderdeveloped. De o he lack of he vibran privae ecor and he agnaing ae ecor, a wide prodciviy gap ha emerged beween Ehiopia and emerging marke economie (e.g., China or India) and alo ome African fronier marke (e.g., Mozambiqe or Uganda) (igre 1 and 2). The prodciviy growh in Ehiopia wa boh mch lower han in hee conrie and more volaile (Table 1). The la for year are a break wih he pa b i remain o be een wheher hi rend i ainable given he conined rigidiie ha characerize he economy. Table 1. Prodciviy growh and volailiy in eleced conrie, mean rel.. dev mean rel.. dev (%) (% of mean) (%) (% of mean) Ehiopia China India Mozambiqe Uganda Sorce: Ahor calclaion baed on he African Developmen Bank and he ILO. 2.2 High Unemploymen, Obacle o SME Regardle of recen growh, he rban labor marke ha been characerized by perienly high nemploymen, which diproporionally affec yong people (igre 3). On he pply ide, he conribing facor inclded a rapidly growing rban poplaion, which more han dobled beween 1990 and 2007, from abo 6 o 13 million. On he demand ide, he agnaing privae ecor ha no creaed enogh job o v The privae ecor inclde all agen in he economy no formally claified a in he pblic ecor ha i agen involved in he governmen, ae-owned enerprie or paraaal, and independen pblic agencie. 7

8 aborb he labor emming from he fa poplaion growh and he declining pblic ecor. Exi rae from nemploymen ino he formal privae ecor have been very low. vi Th only abo half of he oal rban poplaion employed in he formal ecor wa in he privae ecor. The regional diribion wa alo neven, wih mo of he privae ecor concenraed in and arond Addi Ababa. vii igre 1. Labor Prodciviy, Index (1991 = 100), / China India Ehiopia Ghana Sorce: African Developmen Bank, ILO and ahor calclaion. 1/ Labor prodciviy i meared in erm of nmber of people employed. igre 2. Prodciviy level in Ehiopia and eleced African LIC, 1991 and / 1000 Ehiopia 800 Mozambiqe GDP (2000 US$) per worker in he L Uganda Sorce: The African Economic Olook daabae, he ILO daabae, and ahor calclaion. 1/ Labor prodciviy i meared a GDP (in 2000 US$) per worker. vi Among worker nemployed in 1994, 30 percen were ill nemployed in 2004, while anoher 22 percen lef he labor force alogeher. Of hoe who fond job, 70 percen wen o he informal ecor and only 17 percen ended p in he formal privae ecor (World Bank, 2007a and 2007 b). vii To p Ehiopia privae ecor in perpecive, a comparion wih regional peer and oher raniion economie may be efl. In Tanzania, he privae ecor ha been he main driver of growh, and i acconed for abo 70 percen of non-agriclral GDP in In mo raniion conrie, which ared raniion o marke in early 1990, he privae ecor acconed for mo of op by he mid

9 In m, even in 2010, he Ehiopian privae ecor coni moly of mall-cale, informal, low-prodciviy firm. viii Wha facor hen have impeded faer creaion of highly prodcive SME in he formal privae ecor? They have changed over ime. According o he World Bank fir Aemen of he Invemen Climae in 2001/02, high ax rae were he mo common complain of enreprener a he ime, cied by 70 percen of reponden. An inefficien and npredicable ax adminiraion and inadeqae acce o land aociaed wih nclear propery righ followed. The credi conrain wa viewed a imporan, b omewha le han he ax regime and land acce. ix The lack of killed worker affeced 20 percen of enreprener rveyed. igre 3a. Employmen Rae and Yoh Unemploymen Rae by Urban Cener, yoh nemploymen rae (%of relevan L) Addi Ababa Correl. Coef.= employmen rae (% of working age poplaion) igre 3b. Toal and Yoh Unemploymen Rae by Urban Cener, yoh nemploymen rae (%of relevan L) Correl. Coef. = 0.82 Addi Ababa nemploymen rae (% of L) Sorce: Cenral aiical office and ahor calclaion. 1/ Urban cener have above 2000 inhabian. viii The hriving leaher indry i one of he excepion. In he early 2000, i gained hare in he domeic marke, wih i growh being driven by new enran and expanion of incmben (Sonobe e al., 2009). ix or SME o grow, heir acce o credi i crcial. While hi opic i imporan, i ha been addreed elewhere. See Brixiova and Kiyoaki (1997) for raniion economie and Grie and Nadé (2010) for developing conrie. 9

10 2.3 Large and Daliic Informal Secor x Similarly o oher low-income conrie, he informal ecor accon for a large hare of he Ehiopian economy. Given a wide range of eimae of i ize (World Bank, 2007a and 2007b, Cenral Saiic Ahoriy, 2008) new eimae of he ize of he Ehiopian informal ecor are carried o. Specifically, he dicrepancie in moneary balance approach i applied o recen daa (Annex). The empirical analyi revealed ha while he ize of he informal op varied acro period, on average i amoned o 30 percen of he official GDP. xi Since he informal ecor end o be labor inenive, he hare of i labor force wold hen be above 30 percen. Thi i conien wih vario rvey, which fond ha he informal ecor accon for percen of employmen in all rban area. xii Thi eimaed range of he informal ecor i hen ed in he nmerical imlaion of he heoreical model developed below. The majoriy of SME operae in he informal ecor, which coni moly of low-prodcive compeiive and largely ndiffereniaed -- firm concenraed in manfacring and rade. Sill, ome highly prodcive SME alo operae in he hadow economy, in pariclar mall-cale manfacring firm. Thi more dynamic ier ypically employ more edcaed worker. Eimae gge ha hi grop of SME conie arond 20 percen of he informal ecor. The informal ecor in Ehiopia i h daliic, albei more agnan han in, for example, Mexico (World Bank, 2007a). The low prodciviy of he informal ecor rel in low wage, epecially for nkilled worker. Urban labor marke in Ehiopia are characerized by a large wage gap beween he formal and informal ecor (eimaed a %in 2004). xiii 2.4 Labor Marke Rigidiie The kill horage in Ehiopia have been eviden by relaively high rern o edcaion, meared by wage of edcaed relaive o wage of he nedcaed worker. xiv A he ame ime, nemploymen rae of yong people wih high chool and higher edcaion have been high, poining o a mimach beween kill pplied by he edcaional yem and hoe demanded by he privae ecor (igre 3b). Moreover, 1/5 x irm are conidered informal if hey have no book of accon; no licene; and employ fewer han 10 worker. Regarding driver of innovaion, Gebreeye (2009) find ha vocaional raining ha a rong effec on he innovaion aciviy. xi The informal economy wa pariclarly large in he 1980 de o he widepread conflic and heavy ax brden impoed by he governmen. Wih reform package inrodced in he 1990, he ize of he informal economy conraced, nder he new more marke-friendly economic rcre of he economy. xii Informal employmen amon o abo 35 percen in rban cener, b die exclde domeic employee, h ndereimaing he ize of he informal ecor. xiii Wage gap beween formal and informal ecor and beween pblic and privae ecor play a cenral role in generaing nemploymen (Kingdon, Sandefr and Teal, 2006). xiv Taking he illierae worker a he benchmark, edcaion raied wage by 26 percen for hoe wih grade 1-4 and by 130 percen for he highe killed (Den e al., 2005). 10

11 of vacancie in early 2000 remained nfilled, de o he lack of killed worker or heir nwillingne o relocae from he rban o he rral area (World Bank 2007b). The kill horage have been amplified by he imperfec informaion, which ha hampered he maching proce. P differenly, de o he limied exchange a killed labor marke and nderdeveloped iniion, killed worker are no alway aware of available vacancie, while employer poing hem may now know where o find he killed worker. rhermore, even hogh he employmen exchange are formally reponible for informing he nemployed abo opening, heir ervice are rarely ed. Inead, job eeker earch hrogh relaive, op by a work ie, or eablih heir own enerprie. The declining vacancy-o-nemploymen raio poed by agencie h alo reflec he redced r of firm in agencie ervice, in addiion o carciy of job (Den e al, 2005). 3. The Model The model olined below reflec everal of he key ylized fac on he labor marke in Ehiopia: (i) low formal privae employmen, (ii) he large informal ecor coniing of elf-employed and mall, low-prodciviy enerprie, and (iii) he wage and prodciviy gap beween firm in he formal and informal ecor. 3.1 The Environmen The poplaion ize i normalized o 1. There are wo ype of agen, enreprener and worker, wih poplaion hare μ and 1 μ, repecively. xv They live for 1 period, are endowed wih 1 ni of ime and w amon of conmpion good, and have rik neral preference, E(c), where c denoe conmpion and E he expecaion hey form a he beginning of he period. Enreprener A he beginning of he period, enreprener earch for opporniie o open 2 privae firm. Thi effor co hem d ( x) = x / 2γ, γ > 0, ni of conmpion good, and rel in he probabiliy x of finding a bine opporniy wih high prodciviy, z. In order o rn a highly-prodcive opporniy ino a highly-prodcive firm, each enreprener need o hire n nmber of killed worker. xvi Denoing m p a nmber of enreprener wih killed vacancie, V = m n a he nmber of he aggregae killed p xv Th pply of enreprener i no endogeno. Enreprener end o be individal wih pecific backgrond. or example, Djankov e al (2006) fond ha family characeriic had a rong inflence on becoming an enreprener in China. Similar ampion i ed in Gelb e al. (2008) for Africa. xvi Thi ampion reflec ha prodcive firm employ moly prodcive worker. afchamp e al., 2006, who examined employee-employer mached daa for 11 African conrie, confirmed hi empirically alo for Ehiopia. 11

12 vacancie, N a oal nmber of killed worker earching for job, and h nmber of mache, he maching fncion can be decribed a: h = Amin( N, V ) = Amin( N, m n ) (1) where A i conan. xvii A < 1 ince killed worker have imperfec informaion abo available vacancie and enreprener wih killed vacancie are alo no flly aware of available killed worker. Enreprener wih high-prodciviy bine opporniie N h find killed worker wih probabiliy ρ = Amin[,1]. xviii Policy meare ha raie V A increae he efficiency of he maching proce; hey inclde informaion dieminaion and, more generally, job earch ppor, eablihmen of a naional job daabae, and qaliy of labor marke placemen office. Tranpor infrarcre and hoing pply are alo imporan, a hey allow linking iable job and worker in differen locaion, overcoming regional mimache. Afer finding boh he bine highly-prodcive opporniy and killed worker, enreprener decide wheher o operae in he formal or informal ecor. If hey operae in he formal ecor, hey prodce op according o y = β z n. The op i inflenced no only by he prodciviy of he opporniy, z, b alo by he qaliy of he bine climae in he formal ecor, which ener a an efficiency componen of he prodcion fncion β, 0 β 1. xix Each enreprener rnning a highly prodcive firm in he formal ecor i alo axed a rae τ, where 0 < τ < 1, and earn afer-ax profi: p π = ( 1 τ )( β z n w n ) (2) where w i he wage of killed worker employed by formal ecor firm, deermined hrogh bargaining. If he enreprener decide o operae in he informal ecor, hey do no pay profi axe. However, he bine climae in he informal ecor, approximaed I I by β i le favorable han in he formal ecor, ha i 0 < β < β < 1. xvii In he widely ed dynamic earch model of Morenen and Piaride (1999), he maching fncion ake Cobb-Dogla form and i decribed by α 1 α h = AU V. xviii In (1), he killed worker do no alway find killed employmen de o he imperfec informaion. A Snower (1996) poin o, when firm are imperfecly informed abo he availabiliy of killed worker and worker abo availabiliy of firm, even kill ha are efl o all firm are no general ince no all firm have acce o hee worker. Sch kill are alo no pecific ince more han one firm ally ha acce o an available killed worker. xix More generally, β reflec qaliy of formal iniion. Amoro (2009) how empirically ha difference in iniional qaliy help explain difference in enreprenerhip acro conrie. 12

13 I I The op of he highly-prodcive firm in he informal ecor, y = β z n and I he wage rae, w, are alo lower han hoe in he formal ecor. In addiion o impoing ax rae τ on firm profi, he governmen monior ax paymen and deec ax evading firm wih probabiliy φ (0,1). Aming ha he governmen conficae he firm enire profi if i deec ax evaion, he expeced profi of he firm operaing in he informal ecor amon o: π I I I = ( 1 φ)( β z n w n ) (3) The ax-evading enreprener ake he probabiliy of being deeced, φ, a given. Afer finding he high-prodciviy opporniy and killed worker, he enreprener will chooe o operae in he informal ecor if he afer-ax profi in he formal ecor i le I han he expeced profi in he informal ecor, ha i if π < π. Enreprener who do no find highly-prodcive opporniie or killed worker open low-prodciviy firm in he informal ecor, wih prodciviy per worker of z. A wih he highly-prodciviy firm, heir acal prodciviy i lowered by he bine I climae facor β, 0 < β I < 1. The enreprener employ nkilled worker, n, where 0 < n < n. Since hey are alo bjeced o ax monioring and fll conficaion for ax evaion, heir profi amon o: π I = ( 1 φ)( β zn wn ) (4) where w i he wage in he low-prodciviy firm, which eqal he income, b, of he elf-employed in he informal ecor, and φ i he probabiliy of being deeced. Worker Worker acqire kill demanded in he highly prodcive privae firm, and incr co kq ( ) = q 2 / 2θ, where θ > 0. Their effor rel in probabiliy q of obaining kill. xx Skilled worker find employmen in a high-prodciviy firm wih probabiliy V ξ = Amin[,1]. Worker who do no obain kill or do no find killed job work in N he informal ecor, eiher a elf-employed or in low-prodciviy firm. In boh cae hey earn income amoning o b < w. While he marke for nkilled worker i perfecly compeiive, wage for he killed worker are e hrogh decenralized Nah bargaining beween hem and he xx x (and q) are rericed o be beween 0 and 1. Thi ame ha depie heir effor, worker (enreprener) occaionally fail o acqire kill (find bine opporniie). 13

14 highly-prodcive privae firm. xxi If bargaining beween mached worker and enreprener doe no lead o an agreemen, boh worker and enreprener wold ge he income from elf-employmen in he informal ecor, b. Since he ocome of decenralized bargaining depend on he relaive rengh of he killed worker and he firm, α, 0 < α < 1, he reling wage i: w h = α ( β z π ) + (1 α b ; h=, I (5) h ) where denoe he formal and I he informal ecor. Becae he bine climae i more favorable in he formal ecor and hence prodciviy here i higher, ha i I β > β, he wage of he killed worker in he formal ecor exceed ha of he ame worker in he informal ecor, in line wih prodciviy difference. Accordingly, he h wage gap beween he killed and nkilled job i α ( β z π b), h =, I and i again wider for he formal ecor worker. xxii Labor Marke Eqilibrim The characerizaion of he environmen i compleed by he labor marke eqilibrim condiion. Denoing m a he hare of enreprener rnning lowprodciviy firm and employ he nkilled worker, he marke eqilibrim condiion for he enreprener i: μ = m + m h, h =, I (6) h h Similarly, denoing n = m n, h=,i, o be he oal nmber of killed labor employed in he high-prodciviy privae ecor (again eiher in he formal of he informal ecor), and n = mn oal nkilled labor in he low-prodciviy firm in he informal ecor, and n i oal nmber of elf-employed in he informal ecor, he marke eqilibrim condiion for worker i: 3.2 Solion 1 μ = n + n + n h i, h =, I (7) Maximizing he iliy of worker and enreprener and biing from he labor marke condiion yield he following decenralized eqilibrim condiion: xxi Any reconracing i amed away. Nah bargaining wa alo ilized by Acemogl (1996) in a maching framework akin o he one in hi paper. Boghea and Reizman (2010) e mechanim where rpl from he mach i divided beween worker and firm and how ha rel are rob o alernaive maching mechanim. xxii Mengiae (2001) fond ha boh kill and job-maching inflence wage growh in manfacring in Ehiopia. 14

15 x = γ (1 μ ) q ρ ( π π ) = A min ;1 ( π π ) μxn (8) q μxn = ξ ( w b) = Amin ;1 ( w b) θ (1 ) q μ (9) w = pw + ( 1 p) w I, and (10) I I 1 if π = π ( w ) π ( w ) p = 0 oherwie (11) h where w, h=, I, i pecified in (5). Eqaion (8) ae ha in eqilibrim, he marginal co of enreprener earch for a bine opporniy, x / γ, i eqal o he profi from earch. According o (9) - (11), he worker marginal co of acqiring kill eqal he ne marginal benefi from working, which amon o he expeced difference beween he killed wage and he income from elf-employmen. In (9) and (10), he nmber of killed vacancie i V = μxn, h =, I, where m p = μx i he nmber of enreprener who fond highly prodcive bine opporniy ha o operae in ecor h. Similarly, he nmber of killed worker earching for killed job i N ; h =, I. xxiii = ( 1 μ)q De o everal facor, he eqilibrim condiion (8) (11) lead o bopimal ocome in erm of worker and firm effor and hence he nmber of SME. Becae of fricion in he bine environmen, enreprener nder-inve in earching for bine opporniie relaive o he effor hey wold exhor in a more condcive climae. A he impac of he lack of killed vacancie i amplified by he imperfec informaion in he labor marke, worker are ncerain ha hey will find killed job and h nder-inve in raining. xxiv The harh bine climae, high ax rae, weak monioring of ax evaion and rong bargaining power of killed worker drive high prodciviy firm ino he informal ecor. By lowering prodciviy and killed wage, hee facor dicorage worker from acqiring kill. Policie o addre he above weaknee hrogh beer incenive are diced below. xxiii The model eiher ha (i) a niqe rivial eqilibrim where worker and enreprener exer zero effor, or (ii) a rivial eqilibrim and a niqe one wih poiive effor by worker and enreprener. In wha follow, we foc on he niqe eqilibrim wih poiive worker and enreprener effor. xxiv Underinvemen in raining i alo exacerbaed by low wage reflecing low prodciviy. 15

16 4. Sbidie and Oher Policie Since he early 1990, Ehiopia ha been pporing SME hrogh he invemen incenive cheme, coniing of exempion from income axe and die on impored capial good. The income ax exempion cheme applie o SME in pecific indrie and locaed in governmen-preferred or nderdeveloped locaion (Ayele, 2006). So far, i ha h only limied impac on Addi Ababa and rronding region where majoriy of SME operae. xxv While oher iniiaive exi, heir cope ha been limied. More proacive policie oward he SME ecor along he line of hoe adoped in oher conrie are crrenly being explored. In 2000 China adoped naional policy o ppor SME, epecially high-ech and innovaive SME, which lanch new prodc and improve qaliy of exiing one; in 2003 he policy wa adoped a Law on Promoion of SME. China program i pariclarly foced on helping echnology-baed ar p in eleced highprodciviy, high vale added innovaive indrie. Clearly, which ecor are innovaive and highly prodcive depend on conry-pecific circmance, inclding level of developmen, endowmen, capial ock. One of he promiing ecor in Ehiopia eem o be agro-proceing, epecially in rral area. xxvi Secion below examine he impac of policie on (i) enreprener earch for highly-prodcive bine opporniie; (ii) heir deciion o operae in he informal ecor and (iii) worker effor o acqire kill. 4.1 Sbidizing Enreprener Search One of he policy opion coni of (parial) governmen financing of he enreprener earch for highly prodcive bine opporniie. xxvii In cae of bidy ha i proporional o he enreprener earch, x, eqaion (8) now change o: x (1 μ ) q = ρ ( π π ) = A min ;1 ( π π ) γ μxn + (12) The worker raining crve i a in (9) and (10); he enreprener choice of ecor i decribed by (11). Sbidizing enreprener earch will raie heir effor, b i will no xxv Invemen incenive were fir inrodced in 1960, abolihed dring he Derg regime and hen reinrodced wih he change of he governmen in he early xxvi World Bank (2009) gge ha Ehiopia comparaive advanage are clral and hman capial a embedded in ar, jewelry and handcraf-creaing indrie. The repor arge ha a he crren age, policie hold no limi Ehiopia elf-dicovery proce hrogh lock-in ino aic choice. xxvii In pracical erm, hee bidie cold inclde ppor for raining of enreprener o overcome heir own kill horage. Marinez e al. (2010) fond ha greae effec of ch raining on early-age enreprenerial aciviy i in conrie wih favorable iniional conex, conienly wih he model developed in hi paper. 16

17 impac choice of ecor, which depend on profi ax rae, τ, he bine environmen I relaive o condiion in he informal ecor, β / β, and he probabiliy ha informal firm are deeced, φ. xxviii 4.2 Sbidizing Skilled Worker Wage Anoher policy conemplaed and implemened o encorage highly prodcive binee i bidizing wage of killed worker. xxix In cae of he wage bidy per killed worker amoning o ω, profi of he enreprener in he formal ecor, who receive wage bidy ω per killed worker hired, i: π ( ω) = (1 τ )[ β z n ( w ( ω) ω) n ]. Profi of he enreprener working in he I I I informal ecor i nchanged, ha i π = 1 φ)( β z n w n ). ( Worker capre par of he bidy in proporion o heir bargaining power, α. The wage of killed worker working for a firm in he formal ecor hen increae o: w ( ω) = α ( β z π + ω) + (1 α ) b, while he wage of a killed worker employed in I I he informal ecor firm i nchanged, w = αβ z + ( 1 α ) w. Wih higher expeced wage of killed worker de o he bidy, he condiion (10) for worker raining change o: q μxn = ξ ( w ( ω) b) = Amin ;1 ( w ( ) b) (1 ) q ω θ μ (13) Profi in he formal ecor alo increae a enreprener receive par of he bidy. Eqaion (3) h change o: x (1 μ ) q = ρ ( π ( ω) π ) = A min ;1 ( π ( ω) π ) γ μxn (14) The impac of wage bidy on enreprener earch i more nanced in hi cae han nder he earch bidy. ir, if in he abence of bidy he firm wold op for he informal ecor and if he bidy i no large enogh o enice i o move o he formal ecor, he enreprener earch effor wold no change de o he bidy. So he wage bidy can raie enreprener earch effor only if he firm end p working in he formal ecor. Where i change he effor, i rel in he higher nmber of boh highly prodcive firm in he formal ecor and he low prodciviy firm in he xxviii Anoher way o bidize enreprener earch wold be hrogh covering par of he co or raiing efficiency of earch, γ. The bidy i amed o be financed by he lmp-m ax. Brixiova, Li and Yoef (2009) derive he opimal bidy for he fir be olion (wih perfec informaion) and how ha conmpion axe are more efficien for financing hee bidie han profi axe. xxix In many apec, b no all, hi i eqivalen o income ax exempion a elecively applied in Ehiopia. 17

18 informal ecor, a worker do no know a he oe wha ype of opporniy hey will find. Second, in addiion o imlaing enreprener earch, he wage bidy can alo raie he ne profi in he formal ecor relaive o ha in he informal ecor and h inflence in which ecor formal or informal he enreprener operae. Third, even when = ωn, ha i when amon paid by he governmen are eqal nder boh bidie, he wage bidie will be le effecive in imlaing enreprener earch. Thi i becae hey receive only ( 1 α)ωn of he bidy; he re accre o worker. On he poiive ide, worker raie heir raining effor de o higher wage (igre 3). igre 3. The Impac of Wage and Search Sbidie x: effor or enreprener earch crve wih wage bidy baeline earch crve E_1 (earch bidy eqilibrim) earch crve wih earch bidy E_2 (wage bidy eqilibrim) raining crve wih wage bidy baeline raining crve/raining crve wih earch bidy q: learning effor of worker The dependence of he impac of he wage bidy on he ecor in which he firm end p operaing conie a key difference in hee wo ype of bidie. Search bidie, paid before enreprener find heir bine opporniie, impac only heir earch effor, b no wheher hey work in he formal or he informal ecor. Wih wage bidie, forward-looking enreprener increae heir effor only when hey will work in he formal ecor afer finding a bine opporniy and killed worker. In conra o earch bidie, hey alo inflence enreprener deciion in which ecor o operae. When chooing beween vario inrmen, policymaker need o conider he binding condiion ha he economy face. If he pre-bidy eqilibrim i low becae of he lack of killed vacancie, a i he cae in Ehiopia, earch bidie wold be more appropriae o generae ch opening, even hogh hey may be in he informal ecor. In conra, he nmber of killed worker eeking employmen in highly-prodcive firm wold rie more nder wage bidie, b more of hee worker wold end p in lowkilled employmen or elf-employmen. Thi example reconfirm ha for policie o be effecive, hey need o addre biding conrain and no o fall on ninended recipien. 18

19 4.3 Improving he Bine Climae and Reforming he Propery Righ Sppoe ha in he iniial eqilibrim,, firm operae in he formal ecor and he nmber of killed worker looking for job exceed he nmber of killed (formal ecor) vacancie (1 μ ) q > μx n. Wih improvemen o he bine climae in he formal ecor, β, enreprener inenify heir earch for highly prodcive binee. xxx In rn, he increaed nmber of killed vacancie encorage worker o acqire kill. Th in he new eqilibrim E 2, boh enreprener and worker effor wold be higher (igre 4). A relaed obervaion i ha when he lack of killed vacancie i he key conrain o job creaion, improving he bine environmen hold be a prioriy. Policie encoraging more worker o acqire kill wold lead only o addiional killed worker employed in low-killed job or a elf-employed; policie h need o be well-argeed o addre binding conrain. Reforming Propery Righ xxxi An imporan componen of he bine climae in Ehiopia i nclear propery righ, which in principle cold imply a poibiliy of expropriaion and h an exreme form of axaion on he bine capial, where β = 0. Denoing probabiliy of expropriaion a ψ, he enreprener efficiency coefficien in he prodcion fncion in he formal economy change o β = ( 1 ψ ) β + ψ 0. The enreprener will h more likely op for he informal ecor, a he expeced profi in he formal ecor i redced by he poibiliy of expropriaion. Even if hey do no op for he informal ecor, he enreprener will lower heir earch effor. The revere i alo re if improvemen o propery righ are fficienly large, enreprener who wold oherwie op for he informal ecor will increae heir earch effor and op for he formal ecor. In ha ene, improving bine environmen reemble wage bidie/ax incenive. However, wage bidie are le effecive han improvemen in he bine climae in encoraging enreprener o earch for bine opporniie and op for he formal ecor. Thi i becae improved bine climae alo raie firm prodciviy, op and wage of killed worker. A he ame ime, when conidering incenive ha wold move firm o he formal ecor, wage bidie (or ax incenive) may be preferable o exra expendire on ax monioring. Unle he revene from enhanced ax monioring are pen in a way ha benefi enreprener, he profiabiliy of rnning a firm may decreae, dicoraging enreprenerhip. E 1 xxx Enreprener earch wold rie relaive o he cae wih high-prodciviy firm in he informal ecor, provided ha he improvemen in he bine environmen i fficienly large. xxxi Aidi, Erin and Mickiewicz (2009) fond ha he key iniion ha encorage enreprenerhip are propery righ and limi on he ae ecor. 19

20 igre 4. The Impac of Improved Bine Climae enreprener' earching crve x: effor or enreprener weaker bine climae beer bine climae E_1 E_2 worker' raining crve q: learning effor of worker 4.4 Nmerical Example To illrae he impac of policie ch a improved fncioning of he labor marke, A, and bine environmen, β, a well a lower co of earch for bine, γ, and redced profi ax τ, hi ecion provide a nmerical example. The baeline parameer are in Table 2. Table 2. Baeline parameer Parameer A μ φ θ γ I β β α n b n z z τ Vale Thee vale yield he hare of informal ecor in oal employmen of 50 percen and of informal ecor firm in oal firm of 71 percen. xxxii The indicaive elaiciy of informal ecor employmen o change in each of he policy variable A, φ, γ, τ may be calclaed by changing vale of hee variable by 20 percen and comping he new informal employmen rae. The rel in Table 3 are conien wih hoe in Secion 4, namely ha improvemen in he bine climae wold raie nmber of highly-prodcive firm and xxxii Parameer are choen o mach he available informaion or convey reaonable vale. or example, he prodciviy parameer are choen o ha hare of he formal and informal employmen are 50 percen each. The gap beween he wage of nkilled worker in he informal ecor amon o 1/3 of he wage of he killed worker, and he wage gap beween killed worker in he formal and informal ecor i 40 percen. 20

21 high-killed employmen. In he example, he 20 percen improvemen wold lower lowkilled/low-wage employmen in he informal ecor by 27 percen, wih a correponding increae in employmen in he formal ecor. Anoher effecive way of raiing prodcive, formal ecor employmen are improvemen in he labor marke fncioning, inclding hrogh proviion of informaion and redcing co of job earch. A Table 3 alo illrae, redced co of enreprenerial earch (earch bidy) wold increae nmber of highly prodcive firm and killed employmen (in eiher formal or informal ecor). or firm in he formal ecor, wage bidie or income ax c wold have imilar effec, even hogh hey wold no impac informal ecor firm nle he c/bidie were fficienly large o indce hee firm o formalize. Table 3. Elaiciie Variable New vale New hare of informal firm 1/ New hare of informal employmen 1/ Elaiciy of informal and nkilled employmen o 20 % change in variable % of oal % change A τ γ β Sorce: Ahor calclaion. 1/ Original hare in he formal ecor were 30 percen or firm and 50 percen for employmen. 5. Conclion Are bidie an effecive way o ppor enreprenerial ar p and killed employmen in Africa low-income conrie wih a largely nderdeveloped privae ecor ch a Ehiopia? Or policy analyi how ha bidie may help, b he governmen choice of he ype of bidy m addre he main conrain ha he privae ecor face. In conrie ch a Ehiopia, where enreprenerhip i limied and prodciviy low, he key objecive hold be o help enreprener open highprodciviy firm, regardle wheher in he formal or informal ecor. In ch a iaion, he earch (or ar-p) bidy i efl, a i encorage enreprener o earch for highly-prodcive bine opporniie. xxxiii In conra, wage bidie (ax c) wold be le effecive for ar-p a hey moly do no affec firm in he informal ecor, where mo SME in Ehiopia operae. Wage bidie wold be le effecive even for firm enering he formal ecor a hey wold pary accre o worker. On he poiive ide, hey may redce income ineqaliy, faciliae SME formalizaion, and broaden he ax bae. To faciliae ar p of highly prodcive SME and killed employmen, he nderlying inefficiencie and failre in he facor marke alo need o be addreed. Hence boh ype of bidie hold be accompanied by frher reform of he bine climae and fncioning of he labor marke. The key among hem i renghening of xxxiii In pracical erm, ch bidie inclde raining of poenial enreprener o open binee and operae hem. 21

22 propery righ. In addiion o encoraging enreprenerhip -- hrogh higher firm creaion and increaed rae of formalizaion -- clearer propery righ raie firm prodciviy and h wage of killed worker. Thi, in rn, wold encorage worker o acqire kill wiho creaing an exceive pply of edcaed labor. The gap in he fncioning of he labor marke, ch a he lack of informaion abo high-wage job and iable worker, cold be alo ackled, for example by bilding p he employmen exchange office. Wih progre of hee reform, he need for bidie wold decline and hey wold be phaed o. Taking a broader view, he global financial and economic crii ha ndercored he imporance of he diverified privae ecor, inclding dynamic SME. or African policymaker, he crii ha led o rehinking of heir growh raegie. Before he crii, many SSA mall open economie relied almo exclively on DI and expor a he main driver of growh. However, in ligh of he crii, conrie are rying o achieve a more broad-baed growh by hifing ome of heir reorce o domeic privae enerprie and demand. In hi conex, enhanced efficiency of he financial ecor wold help channel aving o heir mo prodcive e. In addiion, in reorce-poor landlocked conrie ch a Ehiopia, domeic reorce wold likely need o be pplemened by exernal financing o eae credi conrain and horage of foreign exchange. Magnide of ch conrain and a deign of miigaing inervenion a well a applicaion of imilar framework o oher low-income conrie in SSA cold be bjec of frher reearch. 22

23 Annex: Eimae of he Share of he Informal Secor in Op in Ehiopia The op prodced in he informal ecor in Ehiopia i eimaed baed on he money demand fncion: M = β TAXR β Y β R β CPI dlib exp( ε )! β β (A1) where he nominal money demand ( M ) i a fncion of he ax rae ( TAXR ), he income in he official economy ( Y ), he nominal inere rae ( R ), he conmer price index ( CPI ), and he dmmy variable defining he economic liberalizaion ( dlib ). The error erm ε i normally and independenly diribed. The ax rae i inclded in he model baed on he ampion ha agen nderake aciviie in he hidden economy o avoid paying higher axe, which raie he hare of cah ranacion. xxxiv Leing! β = log( ). and aking naral logarihm (repreened in lower cae) yield: 0 β 0 m = 0 + β1axr + β 2 y + β 3r + β 4cpi + β5 β dlib + ε (A2) The expeced ign are β1, and β 2 > 0 and β 3 and β 5 < 0 while he ign of CPI coefficien i ambigo. The model i eimaed ing he ime erie daa from he Ehiopian Saiical Office and he Naional Bank of Ehiopia for period Uilizing he co-inegraion framework, and in pariclar he error-correcion model, he crrency in circlaion, M, wa eimaed for each year dring from eqaion (A.2); he eimaion rel are given in Table A1. xxxv The model aifie he andard reqiremen. All variable were fond o be ignifican a 10% level in explaining he demand for money in Ehiopia, wih ign a expeced above. Baed on he key ampion ha he informal ecor i caed by high axe, he coefficien of he ax variable, β 1, i e o zero. By doing o, (A.2) yield he amon of money demanded in he abence of axe, ( LM ). The difference beween he wo erm ( M LM ) i an eimae of he money circlaing in he informal ecor (IM), i.e. money demand in he (ax-indced) informal ecor. An ampion of an idenical money velociy, ( V ), in boh he formal and informal economy i applied o derive he I op in he informal ecor ( ): Y xxxiv The main ampion behind hi approach i ha ranacion in he informal ecor are moly carried o in cah, in order o remain nrecorded. xxxv Agmened Dickey-ller (AD) e, carried o o check he aionariy of variable, revealed ha he variable in he model are aionary of order 1, i.e. I(1). Saionariy (ni roo) e on he aved reidal confirmed long-erm relaionhip among he variable in he model. Diagnoic e of he model howed no evidence of erial correlaion, pecificaion problem and heerokedaic variance (Table A.1). 23

24 Y = IM V = ( M LM ) V I (A3) Eqaion (A.2) can be eimaed wihin he coinegraion framework and, in pariclar, ing an error-correcion model. ir, he preence of ni roo by aking he naral logarihm of each variable and applying Agmened Dickey-ller(AD) e pecified a Z Z Z Δ = ρ 0 + ρ1 1 + σ 1Δ 1 + η (A4) Table A.1. Agmened Dickey-ller Uni Roo Te 1/ Variable Criical vale Level ir Order of A 1% A 5% difference inegraion M I(1) Y I(1) CPI I(1) TAXR I(1) R I(1) Sorce: Ahor calclaion. 1/ In logarihm. Rel The eimaion of eqaion (A.2) i in Table A.2 below. All variable are ignifican a 10% level in explaining he money demand in Ehiopia; ign are a expeced. rom he regreion exercie below, he hare of ndergrond op in GDP (a percen) dring wa eimaed (igre A.1). The exercie revealed ha while he ize of he informal op varied dring differen period, on average i amoned o 30 percen of he official op. The ize of he informal economy wa pariclarly high dring he 1980 owing o he widepread conflic and heavy ax brden impoed by he governmen. Wih reform package inrodced in laer year, he ize of he informal economy conraced in he 1990, nder he new more marke-friendly economic rcre of he economy ha alo allowed he for SME. Even wih he relaive decline, he abole level of he ndergrond economy wa increaing from Birr 11 billion in 1993 (US$ 2.2 billion) o Birr 81 billion (US$ 8.2 billion) in Since he informal ecor end o be labor inenive, i hare in employmen i above 30 percen. 24

25 Table A.2. Eimaion Rel Dependan variable: LM Variable Coefficien Sd. Errorr -Saiic Prob. C LY LCPI LR LTAXR dlib R-qared Mean dependen var Adjed R-qared S.D. dependen var S.E. of regreion 0.13 Akaike info crierion Sm qared reid 0.56 Schwarz crierion Log likelihood aiic Drbin-Waon a 1.10 Prob(-aiic) Ahor eimae. Sorce: igre A.1. Share of he Undergrond Economy, (% of GDP) Sorce: Ahor eimae. 25

26 Reference Acemogl, D. (1996), A microfondaion for ocial increaing rern in hman capial accmlaion, Qarerly Jornal of Economic, Vol. 111, Aidi, R.; Erin, S. and Mickiewicz, T. (2009), Enreprenerial enry: which iniion maer? IZA Dicion Paper No Amoro, J. A. (2009), Enreprenerhip and qaliy of iniion: A developingconry approach, UNU-WIDER Reearch Paper, No. 2009/07. Aaminew, E. (2010) Eimaing he ndergrond economy in Ehiopia, Ehiopian Policy Reearch Inie, draf. Ayele, S. (2006), The indry and locaion impac of invemen incenive on SME ar-p in Ehiopia, Jornal of Inernaional Developmen, 18, Boghea, S. and Riezman, R. (2010), Marke enry co, nemploymen and inernaional rade, The Univeriy of Noingham Reearch Paper 2010/18. Brixiova, Z. (2010), Unlocking prodcive enreprenerhip in Africa lea developed conrie, African Developmen Review, Vol. 22 (3), Brixiova, Z.; Li, W. and Yoef, T. (2009), Skill horage and labor marke ocome in Cenral Erope, Economic Syem, 33 (1), Brixiova, Z. and Kiyoaki, N. (1997), Privae ecor developmen in raniion economie, Carnegie-Rocheer Conference Serie on Pblic Policy, Vol. 46, Cenral Saiical Ahoriy, The Repblic of Ehiopia ( ), Vario rvey of naional and rban labor marke, The Ehiopian Cenral Saiical Ahoriy: Addi Ababa. Den, B.; Tekee, A. and van der Deijl (2005), Characeriic and deerminan of yoh nemploymen, nderemploymen and inadeqae employmen in Ehiopia, ILO Employmen Sraegy Paper 2005/07. Djankov, S.; Qian, Y; Roland, G. and Zhravkaya, E. (2006), Who are China' enreprener? American Economic Review, 96 (2), afchamp, M.; Soderbom, M. and Benhaine, N. (2006). Job oring in African labor marke. Cenre for Sdie of African Economie, WPS/ Gebreeye, M. (2009), Innovaion and microenerprie growh in Ehiopia, UNU- MERIT Working Paper

27 Gelb, A.; Mengiae, T.; Ramachandran, V., and Shah, M. K. (2008), To formalize or no o formalize? Comparion of microenerprie daa from Sohern and Ea Africa, Cener for Global Developmen Working Paper No Grie, T. and Nadé, W. (2010), Enreprenerhip, rcral change and a global economic crii, UNU-WIDER Working Paper No. 2010/57. Kimhi, A. (2010), Enreprenerhip and income ineqaliy in ohern Ehiopia, Small Bine Economic, 34, Kingdon, G.; Sandefr, J. and Teal,. (2007), Labor marke flexibiliy, wage and income in Sb-Saharan Africa in he 1990, African Developmen Review, 18, Marinez e al. (2010), A Global Perpecive on Enreprenerhip Edcaion and Training, Global Enreprenerhip Monior Special Repor. Mengiae, T. (2001), The relaive effec of kill formaion and job maching on he wage growh in Ehiopia, Jornal of African Economie, 10, Morenen, D. and Piaride, C. (1999), New developmen in model of earch in he labor marke, in Ahenfeler, O. and D. Card (ed.), Handbook of Labor Economic, Vol. 3, pp , Norh-Holland, Amerdam. Snower, D., (1996), The low-kill, bad-job rap, in: Booh, A., Snower, D. (Ed.), in Acqiring kill: Marke ailre, heir Sympom and Policy Repone, Cambridge Univeriy Pre, New York, Sonobe, T.; Akoen, J. E.; and Oka, K. (2009), An exploraion ino he ccefl developmen of he leaher-hoe indry in Ehiopia, Review of Developmen Economic, 13, World Bank (2009), Ehiopia Toward he Compeiive ronier: Sraegie for Improving Ehiopia Invemen Climae, World Bank: Wahingon, DC. World Bank (2007a), Ehiopia - Urban Labor Marke: Challenge and Propec, Povery Redcion and Economic Managemen Uni Repor #38665-ET. World Bank (2007b), Acceleraing privae ecor-led growh, in Ehiopia Acceleraing Eqiable Growh: Conry Economic Memorandm, World Bank: Ehiopia. World Economic orm, World Bank, and African Developmen Bank (2009). The Africa Compeiivene Repor, WE: Geneva, World Bank: Wahingon, DC and AfDB: Tni. 27

28 Recen Pblicaion in he Serie nº Year Ahor() Tile Jean-Yve Dclo and Adrey Verdier- Chochane Analyzing Pro-Poor Growh in Sohern Africa: Leon from Marii and Soh Africa Charle Weherill Addiionaliy of Developmen inance Iniion (DI) in Upream Oil and Ga in Africa, Ncbe, Mhli; Thma, M. Mhokozii Moneary Policy Condc Baed on Nonlinear Taylor Rle: Evidence from Soh Africa Ahmed Mommi Analyi of povery in Democraic Repblic of Congo Sami Bibi, Jean-Yve Dclo and Adrey Verdier-Chochane Vincen Cael, Marha Phiri and Marco Sampini Aeing Abole and Relaive Pro-Poor Growh: An Applicaion o he MENA Region Edcaion and Employmen in Malawi Vinaye Ancharaz, Tonia Kandiero and Kpkile Mlambo The ir Africa Region Review for EAC/COMESA Jame Heinz and Léonce Ndikmana I here a cae for formal inflaion argeing in b- Saharan Africa? Deborah Bräigam China, Africa and he Inernaional Aid Archiecre Ron Leng, Marco Sampini and Déiré Vencaachellm Doe Hman Capial Proec Worker again Exogeno Shock? Soh Africa in he Crii 28

29 29

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