ABSTRACT Structural transformation from agriculture to manufacturing remains central to economic development, yet many sub‐Saharan African economies continue to face persistent sectoral productivity gaps. This article evaluates whether Ethiopia's Agricultural Development‐Led Industrialization (ADLI) strategy narrowed the agricultural–manufacturing labour productivity gap and identifies the mechanisms underlying this change. Using the Synthetic Control Method, we construct a counterfactual ‘synthetic Ethiopia’ from a panel of 103 countries over 1981–2017, with 2002 marking ADLI's full implementation. We complement this approach with event‐study and fixed‐effects analyses to examine sectoral productivity and employment dynamics within a framework of worker selection based on comparative advantage. We find that ADLI reduced the agricultural–manufacturing productivity gap by 17.8% between 2002 and 2017. Agricultural productivity increased substantially, consistent with the strategy's emphasis on smallholder modernization. However, manufacturing productivity declined, partly because lower‐productivity agricultural workers transitioned into manufacturing. Trade and transport services complemented manufacturing employment growth, while financial services exhibited substitution effects. The findings suggest that agriculture‐led development can narrow sectoral productivity gaps, but sustaining industrial productivity requires complementary investments in skills, firm capabilities and institutional coordination.
Sie et al. (Fri,) studied this question.