Decomposition analysis of economic growth in Afar region, Ethiopia

Abstract

This paper is aimed to decompose, the economic growth of the Afar national regional state of Ethiopia in to labor productivity, employment rate and working age population and to verify whether the positive economic growth registered earlier on the region was a job creation growth or not. To do so, annual time series data ranging from 2010 to 2018 were used and per capita value added as a measure of economic growth was decomposed by using Shapley decomposition analysis technique. The result reveals that changes in output per worker accounted the highest proportion (74.33%) followed by changes in working age population (32.85%) and employment rate (−7.17%) for the total change in per capita value added during the entire period of time. The negative growth changes registered in employment rate implied that the economic growth registered on the Afar national regional state was a jobless growth. The economic growth patterns of Afar region does not favor the agriculture sector where the poor are found. The within-sector takes the lion share contributing (72.67%) to aggregate change in output per worker growth followed by structural change (13.21%) and interaction of within sectors and structural change (14.11%). Finally, these findings navigated us to suggest for policymakers, to amend their sector-wise economic policies and strategies focused to enhance employment generation and labor productivity of the Afar region.

Keywords:

• Value added
• structural change
• decomposition analysis
• Ethiopia

PUBLIC INTEREST STATEMENT

Nations in the world has used Gross Domestic Product (GDP) as a gauge of economic growth. GDP tells us the nation’s total income and/or the total expenditure on its output of goods and services. GDP is often considered the best measure of how well the economy is performing. Afar region is one of the eleven regional states in Ethiopia that had registered a higher economic growth during 2010 to 2018. But, having a positive economic growth may not be a guarantee to say that there is poverty reduction in one’s nation or region. Because, the impact of economic growth on poverty reduction can be displayed through the extent that the economic growth generates employment opportunity and also its contribution for the productivity of workers. Then in this paper, the researcher has verified that, whether the positive economic growth registered on the region during the last decade was create job opportunities or not by supporting with empirical evidence.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. On the year 2018/19, the average exchange rate is $1 = 28.10 ETB (National Bank of Ethiopia (NBE), 2020).

2. Hence employment data of real estate, renting and business activities for the year 2018 is not available.

3. The value is obtained by multiplying the annual compound gross value added per capita growth rate 4.73% by the contribution share of structural change (13.22%).

Additional information

Funding

The author received no direct funding for this research.

Notes on contributors

Getachew Wollie Asmare

Getachew Wollie Asmare has MSc degree in Agricultural Economics and working as a lecturer of economics at Samara University, Ethiopia. He has imparted various undergraduate courses for Business and Economics students. Some of his area of interest focused in conducting a research on estimation of Regional Gross Domestic Product (RGDP), measuring economic growth and inflation, measuring efficiency, economic valuation of tourism, poverty analysis and measuring food security status using time-series, cross-sectional and panel data.