Is Industrialization possible through Agricultural development Lead Industrialization?

Abstract

Ethiopia is an economically poor country where large people in the abyss of poverty. The economy is mainly agrarian with traditional mode of production that has led to underdeveloped economy. These facts instigate the government to introduce an industrialization strategy, namely Agriculture Development Led Industrialization (ADLI), which gives priority to the growth of agriculture with an ultimate objective of realizing an overall industrialization process in the economy. The presumption that an agricultural growth will give a way to industrialization needs to be evaluated, as the country for 17 years has followed this strategy and after a decade of sustained agricultural growth. One of the premises of ADLI is that a growth in agriculture will provide a domestic demand for manufactured goods, which was missing and dwarfing the growth of industrial sector. The thesis does not focus on the importance of creating domestic demand, but rather whether the consumption pattern of farm households’ is likely to generate demand for manufactured goods as income grows. To answer this question I have estimated the consumption function of farm households in Tigray using an Almost Ideal Demand System (AIDS) so as to identify how demand for manufactured goods respond to changes in income. To indicate the growth of income I have used the per capita expenditure level of households. The estimation result shows that growth in per capita expenditure brings additional demand for durables but no significant change on manufactured goods. Income obtained from crop selling activities increase the demand for durables while income from hired out labor has a positive impact on demand for manufactured goods. Income from agricultural activities has strong positive inter-linkage with consumption of durables than manufactured goods.