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With an average GDP growth rate of 10%, Ethiopia is one of the notable exceptions in Sub-Saharan Africa since the 2000s (4.6% for SSA), especially given that this growth is based on rich natural resources or oil. This rapid economic growth has been partly driven by agriculture, which accounts for 33% of GDP, while the manufacturing sector has only recently experienced fast growth after decades of sluggish performance. The Ethiopian state has committed to state-led industrialization since the 2000s, first building on agricultural transformations, then focusing on FDI-led development of light manufacturing. However, structural change has only occurred to a limited extent until recently and driven by other non-agricultural sectors (e.g. services). This thesis addresses the question of the sluggish performance of the manufacturing sector until recently, despite bold industrial policy efforts. It focuses on the missing or malfunctioning governance capabilities that are needed to sustain an industrial-led process of structural change. In particular the thesis focuses on the missed opportunities to strengthen the backward linkages between textile and garment and cotton sectors. This research applies analytical categories from the field of political economy of institutions and industrial development, by focusing on the different types of economical, institutional, and political factors that have contributed to a disappointing performance of these sectors until recently. Research findings suggest that the key binding constraints affected significantly domestic textile and cotton stakeholders. The thesis explores why new governance capabilities have been generated to boost prospects for T&G production, especially for exports, but are still missing for the development of backward linkages to cotton production.
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