Panel data analysis of profitability and employment growth of medium and large size industries in Ethiopia

Abstract

Manufacturing industries are an asset or value added part of an economy, intimately linked with industrial and engineering design, and engaged in producing significant economic productions that can assist the national growth and development. The aim of the study was to estimate the profitability and employment growth of medium and large size industries in Ethiopia. The variables were chosen based on theoretical and experimental literature findings. In this study, an explanatory study design was implemented in carrying out this research with the prearrangement of secondary data collected from the panel data set of medium and large size manufacturing industries conducted annually by the central statistics agency over the period 2002–2011 E.C. The study employed panel data estimation methods to analyze the influence of medium and large size manufacturing industries on profitability and employment growth. Three panel data models are used: pooled ordinary least squares, fixed effect, and random effect estimation method. The Hausman test revealed the random model was the best fit for both profitability and employment growth. The diagnosticstest: normality, multicollinearity, heteroscedasticity, and autocorrelation tests were conducted on the data. The results obtained indicate that employment growth and profitability in Ethiopia are generally driven by medium and large-size manufacturing industries. The random model result shows that ownership, firm-size, advertising intensity and import intensity have a positive influence and substantial effect on profitability. But, the government has significant effect and a negative influence on profitability. The random model shows that government, advertising intensity and firm-size have significant effect and positive influence on employment growth. Nevertheless, import has significant effect and a negative influence on employment growth. Eventually, the employment growth and profitability have a positive influence and insignificant effect and the authors suggested further research in the areas by taking into account additional variables and newly emerging industries.