Entry, survival and growth of manufacturing firms in Ethiopia

The paper examines firm dynamics in terms of entry, survival and growth using panel data of manufacturing firms in Ethiopia. Entry and exit are closely correlated processes that are predominantly observed among small firms. The evidence shows that entry does not seem to be a major problem in Ethiopia manufacturing. However, survival is very difficult particularly for small firms as the risk of failure increases during the first three to four years of entry and exhibits negative duration dependence afterwards. The hazard of exit is also negatively related with efficiency although efficiency does not determine subsequent growth. Small firms grow faster than large enterprises even after controlling for sample attrition - a finding in favor of an underlying process of market selection while rejecting Gibrat's Law of proportional growth. There is also evidence that competition from imports tends to slowdown firm growth although it does not increase the hazard of business failure. For large firms growth is positively associated with the presence of foreign capital and firm effort at product differentiation.