national statistical offices of Ethiopia and Ghana reduces the average firm size even further, to 9 and 8 workers respectively.

# **3.3 Policy and Institutions**

In this sub-section we present the institutional and macroeconomic environment within which firms operate in the four countries since the 1960s.

The 1950s and 1960s marked era of Import Substitution Industrialization (ISI) for Ethiopia, Ghana and Kenya. In Ethiopia, a deliberate move to stimulate industrial growth began in the mid-1950s under the imperial regime, with a focus on import-substituting light industries (Gebreeyesus, 2013). Ghana’s first industrial reform since independence – the ISI strategy of 1960-1983 – was centered on the development of large-scale, capital-intensive state-owned manufacturing industries. The strategy was marked by massive government intervention in the allocation of substantial resources (Ackah et al., 2014). Similarly, Kenya pursued an ISI strategy following independence in 1963, with a large amount of its manufacturing investment went into heavily protected import-substituting industries, such as textiles, food processing, and metal industries (Chege et al., 2014). Ethiopia has also experienced a socialist military regime (1974 to 1991), in which the manufacturing sector was largely dominated by state-owned enterprises (SOEs) with SOEs accounting for 95 percent of the value added and 93 percent of the employment of the manufacturing sector in the country (Gebreeyesus, 2013). Unlike the three other countries, Cˆote d’Ivoire pursued agricultural export oriented growth strategy, creating a liberal policy environment that was relatively conducive to domestic and foreign private investment during the first two decades after independence. During this period, the Ivorian economy overall was growing at an average rate of 7 percent per year, well above the SSA average. Over the same period manufacturing value added grew by more than 9 percent.

Since early 1980s all the sample countries have implemented Structural Adjustment Programs (SAP) under the support of the World Bank and IMF. Cˆote d’Ivoire launched structural adjustment policy in early 1980s in response to external and internal macroeconomic imbalances, which was mainly triggered by a sharp decline in the prices of key commodities such as cocoa, and coffee (World Bank, 2015). This resulted in massive government fiscal deficit that forced the government to adopt an austerity program in 1982 (Harrison, 1994). Cˆote d’Ivoire instituted a series of trade, fiscal, and monetary reforms. The trade reforms constituted several components that aimed to increase competition in the economy. Ghana instituted a number of policy reforms since the mid-1980s under the Economic Recovery Program (ERP) (1984-2000) - the second of its three major industrialization reforms. The ERP introduced a reform in the industrial policy of Ghana from the traditional ISI to an outward-oriented private sector-led industrial strategy. Some of the policy reforms include: privatization of the SOEs, removal of price and distribution controls, and liberalization of the financial sector and interest rates (Sandefur, 2010). The government has made progress in reforming the regulatory framework and liberalizing the financial sector in which the government enhanced competition in commercial banking through a program of divestiture of state-owned commercial banks. The liberalization has entailed the removal of controls on interest rates and the sectoral composition of bank lending, and the introduction of market based instruments of monetary control (Brownbridge and Gockel, 1996). During the 1980s and in the early 1990s, the Kenyan government also introduced a series of reforms to support export, following growing 8