Ethiopia — an Agrarian Economy in Transition

Rapid economic growth was experienced in Ethiopia since 2005. Real gross domestic product (GDP) grew at an average rate of 10.5 per cent per annum for the period between 2004–05 and 2013–14. Important contributions to GDP growth were made with public investment in key infrastructure and interventions in the agriculture sector. This growth has been accompanied by a process of capital deepening and signs of a structural shift away from traditional and primary sectors towards secondary and tertiary sectors. The processes of both high growth and structural shift, have important implications for poverty reduction and income distribution. One potential channel through which these influences work is the labour market. The indications of structural transformation that Ethiopia has shown in the last decade, including a continuous decline in the role of agriculture and rise in that of services, have led to reallocation of jobs and labour from low-productivity agriculture to more productive industrial—in particular the construction sub-sector—and service sectors. The rise in total factor productivity, overall increase in labour force participation rate, and fall in the labour share of the agriculture sector are indicative of the nature and extent of structural shift in the Ethiopian economy. This study focused on the impact of the high economic growth and slow but unmistakable structural change on a number of economic outcomes working through the labour market. The growth opportunities and challenges of the Ethiopian economy are also discussed.