Effect of Domestically Sourced and Imported Inputs Utilization and Labour Productivity on Labour Demand of the Ethiopian Manufacturing Sector

The objective of this study is to examine the effect of cost of imported and domestically sourced inputs utilisation and labour productivity on labour demand in the Ethiopian manufacturing firms, using a balanced panel data from 2017 to 2021. The study employs a two-step System Generalized Method of Moments (SYS-GMM) estimator and reveals that the cost of domestically sourced and imported raw materials utilized, as well as labour productivity, is significant determinants of a firm's labour demand. Specifically, a 10% increase in cost for locally sourced and imported raw materials demand 0.758% and 0.568% more labour, respectively. Furthermore, a 1% increase in labour productivity results in a 0.341% decrease in labour demand. To address the issue of raw material shortage, it is recommended to design incentive schemes for industries need driven agricultural production. Additionally, enhancing trade openness is suggested to stimulate product demand and increase employment opportunities.