Structural transformation and youth employment crisis: Evidence from Ethiopia’s economic development (1999-2023)

Abstract

This study investigates the impact of structural transformation on youth employment in Ethiopia between 1999 and 2023. Using World Bank data, the analysis applies econometric approaches, including GMM and ARDL models, to examine the effects of sectoral employment shares, foreign direct investment, GDP per capita, urbanization, and a structural transformation index on youth employment outcomes. The findings reveal that industrial employment and overall economic growth contribute positively to youth job opportunities, while agricultural dependence, urbanization, and structural transformation pressures are associated with adverse effects. The service sector exhibits mixed results, with limited capacity to absorb youth labor despite its expansion. Further interaction analysis shows that foreign direct investment supports industrial employment but has negligible or negative effects in agriculture and services. Overall, the results highlight a disconnect between economic growth, investment inflows, and the ability of the labor market to absorb young workers. The study underscores the need for employment-centered development strategies, with a particular emphasis on labor-intensive industrialization and policies that better link investment to youth employment creation.