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Active Private Sector Development Policies Revisited: Impacts of the Ethiopian Industrial Cluster Policy

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journal contribution
posted on 12.03.2018, 06:29 by Tigabu Degu Getahun, Espen Villanger

We analyse impacts of a cluster policy aiming to increase firm growth through maximising agglomeration benefits and improving production facilities. Firms located in a natural cluster were incentivised to move to a new government-created cluster. A limited number of firms were allowed to move, and many similar firms, also eager to move but could not, formed our comparison group. Controlling for selection, and employing difference in-difference estimation, we find large negative effects on job-creation and firm performance. The policy hampered the firms’ business and knowledge networks, reduced trust among firms, increased transaction costs and curbed market information.


This work was supported by the Fiat Panis Foundation [Dr. Hermann Eiselen grant programme].