Embodied technology transfer and learning by exporting in the Ethiopian manufacturing sector

This paper examined the role of imported inputs, new capital goods and exporting on firm performance using micro data collected over 2000–2011 from manufacturing firms with 10 and above permanent employees in Ethiopia. Performance was measured in terms of labour productivity, total factor productivity (TFP) and TFP catch-up. In this paper, we argue that technologies embodied in imported inputs and new capital goods and export orientation are the crucial sources of learning and innovation, which enhance performance of firms in less-developed countries. The hypotheses developed along this argument were econometrically tested by applying a dynamic panel data technique. Results indicate that exporting, greater use of imported inputs and new capital goods significantly improved the productivity and TFP catch-up of firms. The positive productivity effects of imported inputs and new capital goods appeared to be higher for exporters than non-exporters. New capital goods were seen to play a greater role in embodied technology transfer than imported inputs. The findings generally suggest that improving access to imported inputs, encouraging investment in new capital goods and strengthening export orientation among manufacturing firms can help accelerate technology transfer and build local innovation capabilities towards Ethiopia’s desired structural transformation.