Measuring Sectoral Interdependence in Ethiopia: a Social Accounting Matrix (Sam) Approach

The objective of this paper is to measure the extent of inter-sectoral linkages in Ethiopia using social accounting matrix (SAM). According to the paper, indirect effects enhance interdependence in the Ethiopian economy. When general equilibrium effects are taken into consideration, agriculture is found to be superior, through income and consumption linkages, in terms of stimulating economic growth in the country. Specifically, teff, wheat, maize and coffee have relatively strong linkages with other sectors of the economy. Among the industrial subsectors, food processing, metals, beverages, and textiles have strong linkages with the rest of the economy. The paper has also showed that an exogenous increase in the demand for products of agricultural activities has a larger effect on the demand for both labor and capital. Within the industrial sub-sectors, food processing, beverages, and textiles have a strong impact on labor income from an exogenous increase in the demand for the products of these activities. As a result, rural households benefit more than urban households do from an exogenous increase in the products of agricultural activities. This implies that policy interventions that stimulate and increase the incomes of both rural and urban people would generate a significant demand for selected agricultural and manufacturing activities. It can be argued that the agricultural sector cannot be transformed without the development of the modern sector, without which the much desired growth and development cannot be realized. This balanced growth between agriculture and industry has received little attention from policy makers and planners. Thus, it seems reasonable to suggest that the development strategy of the country should recasting of priorities taking into consideration both the agricultural and non-agricultural sectors