Determinants of self-employment in urban Ethiopia: Panel data based evidence

Various studies on the Ethiopian economy in general, and the urban sector in particular, have discussed the staggering level of unemployment in the country. Rapidly growing population and a less-than-satisfactory performance in economic growth over the years, among other reasons, are to blame for this situation. That the unemployment situation is particularly rampant among the youth which constitutes over a third of the population calls for urgent intervention aimed at improving the fate of the unemployed. Promoting self-employment forms an integral part of any intervention aimed at reducing unemployment.

Given this, studying the determinants of self-employment is essential to inform concerned parties as to how self-employment can be encouraged. As well as surveying the relevant literature, the study undertakes an empirical investigation into the nature of self-employment using data from a unique panel data set, the Ethiopian Urban Socio-Economic Survey. Findings of the study give some evidence that self-employment is largely a route out of unemployment rather than being something driven by entrepreneurship. It also finds a declining trend in the patterns of self-employment over the study period.

Very few studies have looked into issues relating to self-employment in the context of developing countries in general, and none in the case of Ethiopia. As such, this study serves an important role shedding some light on issues pertaining to self-employment.

PSI Discussion Paper (new series) 1

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