A Methodological Framework for Cost-Effectiveness Diagnostics in Ethiopian Manufacturing: A Time-Series Forecasting Model (2000–2026)

{ "background": "The Ethiopian manufacturing sector faces persistent challenges in productivity and international competitiveness. A critical gap exists in the systematic, quantitative evaluation of plant-level operational efficiency to inform targeted industrial policy.", "purpose and objectives": "This policy analysis develops and validates a novel methodological framework for diagnosing cost-effectiveness in manufacturing plants. The objective is to provide a robust tool for forecasting operational efficiency trends to guide strategic investment and policy interventions.", "methodology": "A time-series forecasting model is constructed using plant-level panel data. The core econometric specification is a dynamic fixed-effects model: $CE{it} = \\alpha + \\beta1 CE{i,t-1} + \\beta2 X{it} + \\mui + \\epsilon{it}$, where $CE{it}$ is the cost-effectiveness index for plant $i$ at time $t$, $X{it}$ is a vector of operational covariates, and $\\mui$ denotes plant-specific effects. Model parameters are estimated using generalised method of moments with robust standard errors to address endogeneity.", "findings": "The framework's diagnostic application reveals a projected divergence in cost-effectiveness, with capital-intensive plants forecast to underperform labour-intensive ones by an average of 15 percentage points over the forecast horizon. Uncertainty analysis indicates a 90% prediction interval of ±8.2 percentage points around this central estimate.", "conclusion": "The proposed framework provides a statistically rigorous diagnostic tool for identifying systemic inefficiencies within the manufacturing base. It moves policy evaluation beyond descriptive analysis towards predictive, evidence-based assessment.", "recommendations": "Policymakers should adopt this diagnostic model for periodic sectoral reviews. Industrial support programmes must be recalibrated to address the identified efficiency gap, prioritising technical assistance and technology upgrading for capital-intensive operations.", "key words": "cost-effectiveness diagnostics, manufacturing policy, time-series forecasting, operational efficiency, econometric modelling, industrial development", "contribution statement": "This paper introduces a novel, forecast-oriented diagnostic model that