Journal of Social and Economic Development

, Volume 21, Issue 2, pp 329–352 | Cite as

Change in employment level and financial constraint: evidence from Ethiopian manufacturing SMEs

  • Wondemhunegn Ezezew MelesseEmail author
Research Paper


This paper examines the effect of access to external sources of finance on employment growth in small and micro-manufacturing enterprises in Ethiopia. Based on a sample of 1321 respondents covering the 11 zonal capital towns of Amhara region, the key findings include: (1) A large fraction (60.5%) of small and micro-manufacturing enterprises are financially constrained. (2) Access to external finance has positive and significant effect on employment growth—specifically in the metal-wood work subsector, in family-/group-operated enterprises, and in those enterprises that started operation with a mix of own capital and borrowed money. (3) Even though a significant fraction of the enterprises in the sample reported having exposure to some type of industrial extension service, this exposure has no significant effect on employment growth. (4) Women participation in the management/ownership of small and micro-manufacturing enterprises is relatively low (about 29%), and male-operated enterprises are significantly more likely to report expansion in employment than their female-operated counterparts.


External finance Employment growth Small and micro-manufacturing firms Endogeneity 

JEL Classifications

G10 G20 L25 



The author is deeply thankful to the editors and to two anonymous reviewers whose comments have greatly contributed to the improvement of the paper from its first draft.


This study was supported financially by the University of Gondar (Gondar, Ethiopia) under the 2016/17 mega research project financing scheme.


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Copyright information

© Institute for Social and Economic Change 2019

Authors and Affiliations

  1. 1.University of GondarGondarEthiopia

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