Conclusion and Policy Options

“learning-by-exporting” mechanism, (2) through “imported inputs” that make domestic firms more productive, and (3) through “trade-induced” innovation.

The first of these channels refers to exposure to trade leading to within-firm productivity growth through a learning effect, whereby people think of new, production-related ideas by learning from those with whom they do business or compete through trade (Eaton and Kortum 2002). Indeed, if it is persistent and free enough, trade can generate growth and income convergence among economies through the flow of ideas, which, in turn, raises productivity at the firm level beyond the standard efficiency gains from reallocation effects (Alvarez, Buera, and Lucas 2013). Infrastructure for Innovation and Technology Adoption A case can be made for subsidizing research and development (R&D) or innovation by new entrants as another policy instrument for boosting aggregate productivity and generating welfare gains. Acemoglu et al. (2018) show that a policy of subsidizing R&D and innovation by incumbents reduces growth as well as welfare because it deters the entry of more innovative operators. By contrast, subsidizing R&D by both incumbents and new entrants increases growth and welfare if the continued operation of incumbents is taxed at the same time. These two results are complementary and explained by the strong selection effect that industrial policy seeking to promote R&D and innovation is likely to have.

Conclusion and Policy Options

Many Sub-Saharan African countries, including Côte d’Ivoire and Ethiopia, have experienced sustained and significant job growth in manufacturing over the past two decades. As in other regions and sectors, this process has been driven mainly by new and young firms. An important aspect of the process in Côte d’Ivoire, as well as in Ethiopia, is that it has been fueled mainly by an environment of “unlimited labor supply” at comparatively low wages and that, compared with established firms, new and young firms have taken advantage of this environment on a larger scale.

This is a situation in which removing or reducing administrative and economic barriers to entry is potentially the most important policy tool for promoting job growth in the sector. Addressing entry barriers should be understood in the broader sense to include an agenda for reducing entry barriers and minimizing the time and monetary costs of licensing and the postentry costs of complying with regulations. However, regulatory barriers are not the only potential deterrents to entry. Depending on the current market structure, entry into an industry can also be deterred via collusion on the part of incumbent firms unless precluded by an effective competition policy. Moreover, entry regulations