Understanding the Drought Impact of El Niño on Small-scale Food and Beverages Manufacturing Firms in Ethiopia

In 2015-16, El Niño—an extreme atmospheric condition that periodically warms the water across the central and east-central Equatorial Pacific—caused one of the worst droughts in the eastern, southern, and central parts of Ethiopia. In this project, Walelign, Edjigu, and Ayele explore the effects of the extreme drought produced by El Niño on small-scale food and beverage manufacturing firms in Ethiopia. Specifically, they aim to answer three research questions: First, does El Niño drought affect the performance of food and beverage manufacturing firms—measured in terms of firm’s productivity, profitability, survival, and growth? Second, what are the mechanisms through which extreme droughts affect firm’s performance? Third, what strategies do the survived small-scale firms adopt to cope and adapt with droughts?

Walelign, Edjigu, and Ayele will focus on small-scale manufacturing firms that produce food products and beverages as these industries uniquely rely on agricultural inputs that are susceptible to extreme drought stress. These firms are additionally a main contributor of manufacturing employment in Ethiopia. To identify the causal impact of El Niño drought on small-scale food and beverage manufacturing firms, the researchers will use two datasets. The first is the annual census data on small-scale manufacturing firms from the Central Statistical Agency of Ethiopia. The second dataset will be derived from a survey on drought coping and adaptation strategies with a sub-sample of firms. With this data, the researchers will employ the difference-in-differences approach that exploits the time and spatial variation of the 2015 El Niño drought.

This project will further the understanding of the impacts of extreme weather events on firm dynamics in terms of employment creation, firm entry, survival, and growth. As such, it will inform the severity of climate change in constraining the evolution and competitiveness of manufacturing industries in conflict-prone developing countries such as Ethiopia. It will also deepen the understanding of the impact of climate change in the underdevelopment of the private sector in developing country context. By properly quantifying the effect of such extreme weather events on small-scale manufacturing firms, the findings of this project will help policy makers make an informed decision to mitigate the impact of climate change on firms.



Yohannes Ayele

University of Sussex

Habtamu Edjigu

World Bank

Solomon Zena Walelign

University of California, Berkeley