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Working Paper 237 - Decomposing Sources of Productivity Change in Small-Scale Farming in Ethiopia
Agriculture in Ethiopia is the key sector accounting for the bulk of the gross domestic product, employment, foreign exchange earnings, and tax revenue (Chavas and Di Falco, 2012). The pattern and pace of growth of the sector consequently have significant ramifications for the overall economic growth rate and the rate of poverty reduction that can be achieved. In recent years, the sector has registered growth, which was mainly driven by area expansion, with some contributions from improved terms of trade of farm commodities. Given the limited options for expanding the land frontier—particularly since such a strategy rests on unsustainable depletion of forest resources and erosion of soil fertility—improving productivity of the existing land is critical. Increasing productivity is also essential for maintaining the global competitiveness of the sector and mitigating the impacts of climate change. Effective public policy making in the sector therefore requires identifying the potential sources of productivity growth and testing their significance (O’Donnell, 2009).