Readings on the Ethiopian Economy (Paper Cover)

Preface and Acknowledgment

This work is basically a compilation of various papers that I have done on the Ethiopian Economy. As can be seen from the table of contents of the book as well as the footnote in each chapter, this is a work done by myself and my colleagues. Almost all of the chapters are also published in one way or another. Inevitably the work of this nature may show some degree of unnecessary repetition. I hope readers will bear with me on this and, instead, may see how different aspects of the economy are really linked.

Given the nature of this work, I owe a number of people for their help in the course of writing this book. Prof. John Weeks, perhaps following his failed effort to get some kind of 'Reading on Ethiopian Economy' so as to familiarize himself with issues in Ethiopian economy some time back, is the one who first brought the idea to my attention. Then, I thought about the possibility of at least compiling my work on different aspect of the Ethiopian economy and this book is the result of that effort. I am hoping that this book will serve as reference for students and researchers that work on Ethiopian Economy as well as those who want to familiarize themselves with the major tents of the Ethiopian Economy. It can also serve as a complementary reading for a course on Ethiopian Economy.

I would like to thank Abebe Shimeles, Daniel Zerfu, John Weeks, Alem Abereha and Kibrom Tafere with whom I carried some of the work that I have presented in this work. Dani in particular was a constant source of inspiration to work on this volume. I would also like to mention a number of my former students and colleagues who have worked on this book at the various stages of its production. Special thanks must be made to Dawit Berhanu, Kefyalcw Endale, Daniel Zerfu, Melesse Menale, Kibrom Tafere, Matias Assefa and Aster Abebe who painstakingly went through the various chapters of the book and gave me constructive comments. Biniam Ababu and Solomon Ayalew encouraged me at various stages of this work and I am very grateful. I need also to mention Rahel Yilma at Ethiopian Economic Association, Getachew Adem, Mezgebu Arnha, Anmew Ebye at Ministry of Finance and Economic Development (MoFED); Elisa Kedir, Seife Dendir, Mekdem Tidju and my colleagues at the Department of Economics, AAU; Bahru Zewde, Shferawu Bekele, Gebru Mersha at the College of Social Science at AAU for their excellent support at various stage of the studies compiled in this book. I would also like to thank the publishers of Journal of Northeast African Studies; Journal of International Development; Ethiopian Journal of Economics; Ethiopian Journal of Development Research; as well as Cambridge University Press; World Institute of Development Economics Research; Oxford University Press, Pall grave Macmillan, Ministry of Finance and Economic Development (MoPED), Ethiopia, World Bank's Ethiopian Country Office; African Economic Research Consortium, and Ethiopian Economic Association for allowing to publish some of the chapters in this book which are already published by them and to whom the copyright belongs. I thank them all.

Alemayehu Geda
Adama, Ethiopia
August, 2010

Foreword

Almost four decades has passed since the publication of the book of readings on the Ethiopian economy by Eshetu Chole and Assefa Bekel. It is also almost two decades since the publication of the second comprehensive survey of the Ethiopian economy: "The Macroeconomic Performance of the Ethiopian Economy' by Eshetu and Mekonnen (1992). These two publications laid the foundation for subsequent publications on the state of the Ethiopian economy, such as those edited by Berhanu and Befekadu, and Alemayehu and Berhanu. Though widely cited these studies were neither comprehensive nor analytically rigorous. The present book by Alemayehu Geda does not have these shortcomings. It covers the main aspects of the Ethiopian economy including relevant policy issues. There is little doubt that this book will be an important source for students, researchers, policy makers, and all those interested in the dynamics of the Ethiopian economy.

The first part of the book starts with a broad macroeconomic survey of the Ethiopian economy since 1991. This chapter provides a systematic appraisal of the macroeconomic performance, and, more importantly, it lays out a basic framework to understand the Ethiopian economy. This framework includes the political context for macroeconomic management, the macro growth strategy within which saving and accumulation take place, and the market structures in which economic agents function. This chapter is essential reading to understand the functioning of the Ethiopia economy and the macroeconomic stance that has affected that functioning. The other chapters in the first part (chapters 2-9) provide in-depth discussion of the main building blocks of the Ethiopian economy, the agricultural sector, industry and services, the financial system, and international trade and finance. Rural urban linkages, inflation, monetary policy and tax reform are also treated in detail.

The second part, chapters 11, 12 and 13, focuses on the major policy issues in of the Ethiopian economy: debt, poverty. inequality, and credit constraints. It also discusses the prevailing development strategy and its relationship to these issues. Each chapter in this part addresses one of the above issues and provides insights for policy interventions. The part of the book is a mix of descriptive analysis and rigorous econometrics based on time series and a household level panel survey data. As a result of its rigor and comprehensiveness, it provides the foundation for further empirical work in the aforementioned areas.

The third part, chapters 14 to 17, presents the macroeconomic tools for policy design and evaluation. This presentation addresses the various weakness in policy identified in the chapters in parts one and two. After a comprehensive review of macro modeling in Ethiopia, the author develops a detailed description of the theoretical framework for the applied macroeconomic model used by the Ministry of Finance and Economic Development (MoPED).

Part four, chapters 18, 19 and 20, turns to the political economy of growth and conflict. Given Ethiopia's long history of conflict, the importance for public welfare of well functioning institutions and stability cannot be stressed too much. Part four provides one of the few if not the only studies of Ethiopia that explicitly discusses this important issue. It combines both historical and empirical analysis to address the issues systematically.The last part complements the presentation in the previous part, especially chapters 15 and 16 that review the economic writings of the 19^th and early zo" century Ethiopian thinkers. The purpose goes beyond the history of economic thought in Ethiopia. Specifically, it is useful to reflect on "why we are where we are now", i.e., the failure of our policy makers in reaching informed decisions based on rigorous economic analysis, as advocated in the works of Gebre-Hiwot Baykedagn. This book shows that Ethiopian underdevelopment has more to do with the political will in selecting the appropriate policy path than with any national intellectual "deficit". The author demonstrates that the indigenous knowledge is present and has been for generations, awaiting the political process to take advantage of it.Overall, this is a book that must be read before anyone can claim to have an understanding of the Ethiopian economy. Even more, it provides a guide to the political economy of policy and policy making.

John Weeks
Professor Emeritus

School of Oriental and African Studies 

University of London