This Ph.D. thesis contains three self-contained chapters on the effect of FDI on technology transfer, labor market outcomes; and monetary policy in Ethiopia. Chapter 1, “The Competition and Technology Transfer Effect of FDI: Evidence from Ethiopia”, explores the pure technology effect of FDI in the Ethiopian manufacturing industry and disentangles the two counteracting effects of FDI. We construct product closeness and product market competition indicators for firms using the disaggregated product groups from 2013 to 2017. To overcome the endogeneity of FDI and competition, we constructed instruments and used the IV method. The result shows that horizontal FDI increases technology spillover to domestic firms in sectors where product market competition is in related product groups. The technology spillover in related product markets also outweighs the negative product market competition effect of FDI, which is prevalent in sectors where firms are competing in identical product groups. Chapter 2, “Foreign Direct Investment and Wage Inequality in the Ethiopian Manufacturing Industry”, examines the effect of FDI on wage inequality. This paper provides micro-level evidence of the effect of FDI on wage inequality in Ethiopia, which has recently joined the global value chain of the manufacturing sector. Using firm-level data from 2013 to 2017, the study finds that despite the rise in wage inequality, the industry did not experience Skill-Biased Technological Change (SBTC) over the period. The result from the two-stage system-GMM estimates of the translog cost function also indicates that FDI increases firms' relative demand for skilled labor, driving the rise in wage inequality. These findings suggest that while SBTC is underway at the firm level in the Ethiopian manufacturing industry, it has not yet translated to the industry. Chapter 3, “Liquidity Shock and Bank Lending: Evidence from a Natural Experiment in Ethiopia", studies the impact of the liquidity shock on credit supply and its implications on the bank lending channel. This paper exploits the mandatory regulatory requirement on new bill purchases as a natural experiment and provides evidence of the causal impact of the bank lending channel of liquidity shocks in a developing country. The result from an event study design shows that banks whose liquidity was affected by the regulation reduced lending, confirming the prevalence of bank lending channels in developing countries. Banks thus engage in credit rationing by providing small-sized loans with higher repayment frequency to many borrowers, thereby increasing the volume of loan supply by better-capitalized banks.
Essays on FDI and Monetary Policy in Ethiopia.
Moges, Ashagrie Demile
2024-01-01
Abstract
This Ph.D. thesis contains three self-contained chapters on the effect of FDI on technology transfer, labor market outcomes; and monetary policy in Ethiopia. Chapter 1, “The Competition and Technology Transfer Effect of FDI: Evidence from Ethiopia”, explores the pure technology effect of FDI in the Ethiopian manufacturing industry and disentangles the two counteracting effects of FDI. We construct product closeness and product market competition indicators for firms using the disaggregated product groups from 2013 to 2017. To overcome the endogeneity of FDI and competition, we constructed instruments and used the IV method. The result shows that horizontal FDI increases technology spillover to domestic firms in sectors where product market competition is in related product groups. The technology spillover in related product markets also outweighs the negative product market competition effect of FDI, which is prevalent in sectors where firms are competing in identical product groups. Chapter 2, “Foreign Direct Investment and Wage Inequality in the Ethiopian Manufacturing Industry”, examines the effect of FDI on wage inequality. This paper provides micro-level evidence of the effect of FDI on wage inequality in Ethiopia, which has recently joined the global value chain of the manufacturing sector. Using firm-level data from 2013 to 2017, the study finds that despite the rise in wage inequality, the industry did not experience Skill-Biased Technological Change (SBTC) over the period. The result from the two-stage system-GMM estimates of the translog cost function also indicates that FDI increases firms' relative demand for skilled labor, driving the rise in wage inequality. These findings suggest that while SBTC is underway at the firm level in the Ethiopian manufacturing industry, it has not yet translated to the industry. Chapter 3, “Liquidity Shock and Bank Lending: Evidence from a Natural Experiment in Ethiopia", studies the impact of the liquidity shock on credit supply and its implications on the bank lending channel. This paper exploits the mandatory regulatory requirement on new bill purchases as a natural experiment and provides evidence of the causal impact of the bank lending channel of liquidity shocks in a developing country. The result from an event study design shows that banks whose liquidity was affected by the regulation reduced lending, confirming the prevalence of bank lending channels in developing countries. Banks thus engage in credit rationing by providing small-sized loans with higher repayment frequency to many borrowers, thereby increasing the volume of loan supply by better-capitalized banks.File | Dimensione | Formato | |
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