census of all manufacturing establishments with ten workers or more that use power-driven machinery.<sup>24</sup> Besides recording information on plant location, industry, legal form and employment, the LMMIS includes relatively detailed balance sheet accounts regarding assets and inputs use.

The data used in this paper are an unbalanced 13-year panel from 1996 to 2009, comprising 13,975 plantyear observations for 3,772 unique plants. This paper uses a definition of high-growth that considers growth over a three-year window, and hence requires that a plant be observed for at least three consecutive years. This limits the number of plant-year observations for this study to 5,962, equivalent to 1,218 unique plants. Of these, 57 establishments are dropped due to lack of information on capital assets or raw materials as TFP cannot be estimated for these plants.

Although the count of registered formal manufacturing plants grew rapidly from 623 in 1996 to 1,948 in 2009, plant activity has been less dynamic.<sup>25</sup> Average plant size fell from close to an average of 136 employees in 1996 to less than 70 employees in 2009, while the median plant size remains close to 20 employees throughout the sample period. These results imply that new plants entering the market are mostly small and hence may lack the necessary economies of scale needed to serve the global market. There is a lot of churning in Ethiopian manufacturing with gross entry rates recording an average 7.6 percent per year, while the exit rates among new plants are also high. Research suggests that 60 percent of manufacturing plants in Ethiopia exit the market within 3 years of entry (Gebreeyesus, 2008).<sup>26</sup> Manufacturing in Ethiopia is concentrated in five main towns, with Addis Ababa hosting over 61 percent of plants in 1996, while the other four towns being Dire Dawa, Bahir Dar, Hawassa and Nazreth add another 10 percent to total plant count. By 2009, the importance of the capital city declined to less than 40 percent, while the share of top five locations dropped to 51 percent during the same period. Indeed, between 2000 and 2011, a number of cities have managed to expand their manufacturing base – in particular, Adwa, Sebeta, Debreziet, Awassa, and Mekele, witnessed an increase in the share of the total manufacturing plants from 12.2 percent in 2000 to 22.2 percent in 2011 (Mukim, 2016).

# **_Defining High-Growth Firms_**

The literature on high growth firms considers various indicators and methods to identify HGFs. The OECD definition, for example, imposes a percentage cut-off on growth rate, typically on a three-year period. In practice, OECD defines HGFs as those firms that experience an annualized compound growth rate in employment by at least 20 percent over a three-year period. A criticism of this definition is that it is more likely to assign HGF status to smaller firms that start from a lower base. This shortcoming is addressed by the “Birch Index”, which scales the relative growth rate by absolute change in employment to reflect the differences in initial size. In the context of Ethiopian data that includes plants with a threshold of 10 employees, using the OECD definition does not seem to be problematic. Nevertheless, the paper will also consider robustness checks with the Birch qualified HGFs.

In terms of the choice of indicators, employment is the chosen metric for two reasons. First, from a development perspective, factory employment is often a desirable economic outcome at the household level and is associated with income growth and development. Second, given the possibility of negative

> 24 In practice, however, some plant-year observations have recorded fewer than ten workers. This could perhaps be because once an establishment crosses the ten-employee threshold and has been surveyed, it remains part of the census even if its size shrinks below this threshold. It should be noted that the year 2005 is peculiar because CSA sampled only some industries in this year.

> 25 In 2001/02, about 97 percent of the manufacturing establishments were micro firms employing fewer than 10 people. 26 Using data from six developing countries, Cusolito and Maloney (2019) document entrepreneurial dynamism through entry and exit rates, and again Ethiopia stands out in terms of high exit rates.

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