Firm heterogeneity and market selection in Sub-Saharan Africa: does it spur industrial progress?

This article investigates the processes of market selection and industry dynamics in a sub‐Saharan Africa context. Using census‐based longitudinal data, it examines the distribution of productivity within an industry to determine whether patterns of firm entry, exit, and survival are driven by underlying efficiency differences. It also estimates the contributions to industry‐level productivity growth of the reallocation of resources and market share from less efficient producers to more efficient ones. The paper concludes that markets in Sub-Saharan Africa, as represented by Ethiopia, are at least as strong as other regions in selecting efficient firms. Tolerance of inefficient firms also declines with the degree of exposure international competition. While reallocation of resources played a positive and significant role for industry level productivity, it has only managed to offset the declining tendency in intra-firm productivity.