Abstract
It is not uncommon that different government officials and practitioners infer the fallingagricultural share in GDP to the underpinning of structural transformation in an economy. By using variousstudies result and a time series of data spanning from 1981 up to 2017, this paper investigated, whetherthe declining share of agricultural output in GDP is indicating structural transformation or not in Ethiopianeconomy. The study showed that the service is the fastest-growing sector in Ethiopia, and it covers morethan 40% of GDP. The share of agriculture sector was 45% of GDP until 2011, while the industry sector hasbeen stagnating. Thus, it shows how the falling share of the agriculture sector in GDP is being supersededby the service sector. Empirical works also reveal that even though the share of the agricultural sector inGDP is falling, it is the primary source for the overall economic growth of Ethiopia. The share of the ruralpopulation has decreased from 89 percent in 1981 to 80% in the year 2017. So the vast population of thecountry is living in rural areas where agricultural-based activities are common. Lack of labor shift from theagricultural sector to the industrial sector can also be attributed to the insufficient expansion of themodern industrial sector to absorb the growing force labor. Furth more, the demographic transition alsoshowed a relative decline. Since structural transformation involves several interrelated processes, thedeclining share of agriculture output to GDP alone cannot explain the prevalence of structural change; theother processes like; industrialization, urbanization, and demographic transition need to be scrutinized
Highlights
Background of the Study: The process of economic development in an economy results in distinct structural changes
Different Empirical works (Adisu, 2019; Diao, 2010; Worku & Genet, 2013; Xinshen & Steven, 2007) confirmed that even though the share of agricultural sector is falling, it is the primary source for the overall economic growth of Ethiopia
This paper investigated whether the declining share of agricultural GDP in Ethiopia is indicating structural change or not
Summary
Background of the Study: The process of economic development in an economy results in distinct structural changes. The path of economic development leads to structural transformation, and shrinking of the significance of the agricultural activities, and the growing domination of industry and service activities. Under this pattern, the structure of the economy is dominated by agricultural production at the beginning of the development process. The industrial sector becomes the dominant, and the service sector leads, in terms of the percentage share of employment and GDP. According to Tadele, (2003), the economies of developing countries (including Ethiopia), are characterized by the dominance of the agricultural sector, while the modern industrial and service sectors are almost underdeveloped. The agricultural sector in the Ethiopian economy covers about 35.8 percent of GDP, whereas the industrial and service sectors take 42 and 22.2 % of GDP, respectively
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