The industry and location impacts of investment incentives on SMEs start-up in Ethiopia

Abstract

This paper examines impacts of investment incentives (exemptions from paying duties on imported capital goods and income taxes) on entrepreneurial choices of industry and location in indigenous small and medium-sized enterprises (SMEs) in Ethiopia. Evidence from the 1990s showed that just a few supported industries received the lion's share of the incentives, to set up in locations intended to receive the least support. Close study of the entrepreneurs showed that they set up enterprises where they live, work, and in industries where they have accumulated training or experience. The study concludes that investment incentives are rather weak policy instruments of indigenous SMEs and regional development in Ethiopia, and that other developing countries need to be cautious about such instruments. Copyright © 2006 John Wiley & Sons, Ltd.

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