Conflict and Input Misallocation in the Manufacturing Sector: Evidence from Ethiopia

The closure of roads spread to the Amhara region, the second largest in the country, by the beginning of 2016. [...] Supply chain disruption: The destruction of input supplier firms, the closure of roads, and the disruption of international trade routes disrupt upstream and downstream firms in the supply value chain. [...] Following Hsieh and Klenow (2009), and Amodio and Di Maio (2018), the value of capital is calculated as the average of the book value of fixed asset at the beginning and end of the year. [...] The left side of Figure 4 shows the distribution of conflicts at the zonal administration level, while the right side of Figure 4 shows the location of the medium and large-scale manufacturing firms. [...] One of them is that as we use the Cobb-Douglas production function specification, it restricts the magnitude of the elasticity of substitution between foreign and domestically produced materials, which may lead to the over-estimation of the impact of input substitution on the output value.