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- Ethiopia and Uganda are two land-locked economies dependent on imported inputs for a small but growing manufacturing sector.
- They have contrasting exchange rate regimes affecting the cost of imports in different ways. Ethiopia uses a crawling peg exchange rate regime while Uganda has a floating exchange rate regime.
- Currency fluctuations are associated with the fall in importers in Ethiopia, while in Uganda the number of importers and exporters remains stable and unaffected by such fluctuations.
- In Uganda, the productivity of firms is unaffected by the currency shocks to imports, while the shocks to exports are associated with increases in productivity. In Ethiopia, currency shocks are associated mainly with a fall in the share of importers.
- It is generally accepted that the exchange rate regime in Ethiopia has constrained manufacturing firms. This research quantifies the impact, provides a benchmark in Uganda to measure this against, and suggests the rationing regime has been distortionary.