1) The study analyzed trends in total factor productivity (TFP) in Ethiopian agriculture from 2004/5-2009/10 using growth accounting and econometric models. 2) Results from growth accounting models showed average annual TFP growth ranging from 1.4-5%, while econometric models found average annual TFP growth of 3-5%. 3) Half of increased agricultural output was from expanding cultivated area, while the other half came from intensifying input use, rising TFP, and efficiency gains. Labor, fertilizer, and cultivated area increased most across regions.

1. ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTE Trends in Total Factor Productivity of Agriculture : A Growth Accounting and Econometric Approaches Fantu Nisrane Bachewe International Food Policy Research Institute (IFPRI) (Ethiopia Strategy Support Program, ESSP-II) 9th International Conference on the Ethiopian Economy, Ethiopian Economic Association (EEA) Addis Ababa July 21-23 2011 The views expressed in this paper are those of the author and do not represent the official position of his institution.

2. Presentation Outline Introduction Objectives and a brief description of proposed study Models Data and scenarios Results and observations Summary and key findings.

4. Increased total factor productivity (TFP), and/or

6. what and how important are factors explaining growth in output and yields

7. Was there and the magnitude of efficiency gains?

9. Enumeration area data implied significant gains in TFP,This work is intended to investigate patterns of TFP during 2004/5-2009/10.

10. 3. Model: growth accounting. The rate of growth of TFP is the difference between the rates of growth of real product and real factor input, Let agricultural production is represented by: Differentiating with respect to time and rearranging, Including several criticisms results in a modified model:

11. 3. Model: Cobb-Douglas and SFA. Empirical Cobb-Douglas production function used: Stochastic Frontier Analysis: Assumes that the error term of production function is composed of idiosyncratic and inefficiency components: Inefficiency is assumed to be a function of zone level characteristics

13. Shares derived from 2004/5 EDRI SAM used as starting factor shares

14. Labor, land, and capital had 73.5, 13, and 13.5 percent share – baseline

15. In 5-factor model primary inputs had 68.3, 13, and 9.2 percent while intermediate inputs of manufacturing and services had 3.7 and 1.5

16. Three subcategories formed under each model:

17. First model assumes 2004/5 factor shares,

18. Assumption relaxed by considering changing wages and rental rates of land,

19. An average of two cases.

20. Annual changes in labor services proxied using:

21. Growth rate of number of private holders from CSA,

22. Growth rate of total employment in agriculture calculated from WDI,

24. Rate of change in capital services proxied by growth rate of three variables.

26. Tigray, Amhara, Oromia, and SNNPR zones considered for analysis,

28. A cumulative TFP level of 1.24 by 2009/10 from 2004/5Values of TFP changes and levels close under 3-factor and 5-factor specifications, Under 5-factor specification average annual change in TFP was 4 percent and level of TFP of 1.212 in 2009/10 from 1 in 2004/5. Modified model had an average annual decline in TFP of 2.1 percent and decline in cumulative TFP from 2004/5 normalized to 1 to 0.895, Large deviation due to reduction in yield due to water stress, without which annual change in TFP averaged 1.4 percent and level of TFP grew to 1.07 in 2009/10 from its normalized level of 1 in 2004/5.

29. 5. Results of analysis: growth accounting

30. 5. Results of analysis: growth accounting

31. Level of agricultural TFP, 2004/5-2009/10 (2004/5=1).

32. 5. Synthesis of Results: Cobb-Douglas production Function Most important result of the C-D production function is: Averaging over the years TFP grew annually at 5 percent, Estimated Coefficients also imply that: Output growth largely derive from growth in labor & cultivated area Fertilizer, improved seeds, and irrigated agricultural have no significant contribution as was found in Bachewe et. al. (2011), Surprisingly livestock contributed insignificantly, Region dummies imply zones in Amhara and Oromia are similar with those in Tigray while SNNPR zones have superior production function,

34. Application of extension package and expert advisory services

35. Decline in proportion of credit users National average level of efficiency was 0.72, and it grew at an average annual rate of 1.2 percent, Flexible specifications have similar implications.

36. 5. Results of analysis…contd.

37. 6. Summary and key findings. Half of increase in production during 2004/5-2009/10 attained at an extensive margin, Remaining increase resulted from intensive use of inputs, growth in TFP, and increased efficiency. Although increase in output largely resulted from increased use of traditional inputs, there was a fair amount of intensification, with growth in Tigray, Amhara, Oromia, and SNNPR averaging 4, 2.6, 2.1, and 3 for labor; -2, 3, 1, and 2.5 draught livestock 6, 26, 5, and 11 for fertilizer -27, 30, 19, and 20 for pesticides, and Cultivated area at 8.6, 5, 4, and 6.3 percents. Growth in TFP varied across models, ranging from 1.4 to 5 percent. Annual growth in efficiency averaged 1.2 percent.