An experimental study of pro-poor growth: factories and wage work versus self-employment

Industrial development is clearly growth-promoting, but is this growth “pro-poor”? Given the absence of industrial development from the aid and policy agenda (namely achievement of the Millennium Development Goals), many governments and aid agencies seem to implicitly believe that industrial work is not pro-poor. This belief constrains policy innovation in industrial and investment climate improvement. This study sets out to quantify the impact of industrial jobs on poverty and other measures of well-being. While agriculture interventions for smallholders can indeed enhance productivity and reduce poverty, agriculture is an unlikely engine of economic growth, as it needs strong demand for its produce to drive innovation and productivity growth, and as it typically does not produce enough value added per worker to drive long term growth. Industry, on the other hand, is the better part of GDP in every middle income country, and has a disproportionate effect on the wealth of poor countries. The Ethiopian government understands this and has begun to act on it. Most of the policy focus has yet been on agricultural-led development, but this year marks a shift into the new 5-year Growth and Transformation Plan. The new plan aims to improve the efficiency of the industrial sector, where it is aimed to take the lead over the agricultural sector by 2020. This shift in policy sheds light into the research gaps for the development of medium and large industry. This lack of knowledge impedes the transition towards industrialization. This study will be able to answer more of the primary questions around this debate. Are industrial jobs pro-poor? Are industrial jobs of poor quality or poorly paid? Are jobs in the informal or agriculture sectors superior at poverty reduction? What are the growth linkages from employment in industrial jobs, compared to selfemployed in the informal sector and agriculture? Do steadier incomes lead to household specialization and productivity gains? Answering these questions will inform policymakers on the opportunities for the equitability of a growth that is driven by the industrial sector. The project will generate rigorous experimental evidence on the welfare effects of factory jobs. In partnership with a venture capital firm in Ethiopia, a random sample will be provided formal-sector wage jobs while another group will be randomly provided microenterprise support. These groups will be followed through time to measure comparative longer-term welfare effects. Traditional aid interventions such as microenterprises have predominantly been the focus of aid agencies and other governments. Until recently, it has also been foremost for Ethiopian development policy. Thus, the study will challenge the priority given to microfinance and microenterprises over industrial development. Ultimately, however, the researchers aim to influence global public policy at the highest levels. If industrial jobs are as pro-poor as the researchers hypothesize, it implies sweeping changes for foreign aid and international development goals, including a renewed emphasis on creating conditions for the growth of medium and large enterprises in Africa.