Hundanol Kebede

Hello! Welcome to my website!

I am an Assistant Professor at the Economics department of Southern Illinois University, Carbondale.

My fields of interest are International Trade, Applied Microeconomics, and Development Economics. My current research mostly focuses on the effect of trade and infrastructure expansion on spatial distribution of economic activities and welfare in the context of low-income countries. I have strong interest in how trade (both domestic and international) and infrastructure affect manufacturing growth, structural transformation, employment, wages, and welfare in low income countries. I also have strong interest in some development topics including how households deal with shocks, such as weather and price shocks, and the effects of forced displacements on the displaced and the hosts.

Publications

Market Integration and Separability of Production and Consumption Decisions in Farm Households (Journal of Development Economics Volume 158, September 2022, 102939)

Abstract: I study to what extent farm household’s production decisions are dictated by their consumption preferences – widely known as the separability hypothesis–and explore how this is related to market integration. My empirical approach is derived from a theoretical insight that if household production decision is independent of its consumption preferences, the household’s tastes for different crops should not affect household land allocation across the crops, and the extent to which the crop tastes affect land allocation depends on the level of trade costs. I implement this test using a very rich household panel data on production and consumption from Ethiopia, which coincide with a period of massive rural road construction. I estimate household crop tastes from their preference function and show that these tastes significantly affect household land allocation across crops. This effect significantly decreases with proximity to markets and with improvement in market integration due to construction of new rural roads.

The pass-through of international commodity price shocks to producers’ welfare: Evidence from Ethiopian coffee farmers (World Bank Economic Review Vol. 36, No. 2 MAY 2022 Page: 305-328)

Abstract: International commodity price shocks may have large impacts on producers in developing countries. In this paper, I use unique household panel data from Ethiopia to show that a decrease in international coffee price has strong pass-through to the consumption of households that rely on coffee production as a main source of livelihood. It also results in decreases in on-farm labor supply (particularly male labor supply) and induces reallocation of labor towards non-coffee fields, but has negligible effect on off-farm labor supply. The decline in consumption has significant consequences on child malnutrition. I find that children born in coffee-producing households during low coffee price periods have lower weight-to-age and weight-to-height z-scores than their peers born in non-coffee households.

Working paper version

Risk aversion and gender gaps in technology adoption by smallholder farmers: Evidence from Ethiopia (Journal of Development Studies Volume 58, 2022 – Issue 9 Pages 1668-1692)

Abstract: Adoption of chemical fertilizers is a high-risk and high-return investment option for smallholder agricultural households that heavily rely on rainfall. I document a persistent gap of above 10% in adoption of chemical fertilizer between male- and female-headed smallholder farmers in Ethiopia. This gender gap remains after accounting for household characteristics, access to complementary farm inputs, access to credit, soil quality, and crop selection. Using historical variability of rainfall at district level as a measure of a district’s risk of crop failure, I find strong evidence that the gender gap in fertilizer adoption increases with the level of risk in the district. I explore the role of two competing hypotheses to explain this observation: gender difference in risk aversion and differential access to consumption smoothing by male- and female-headed households. I find strong evidence that both these factors play significant roles but gender difference in risk aversion plays the dominant role. This is consistent with a bulk of lab and field experimental studies that find evidences that women tend to be more risk averse than men.

How Efficient Are the Ethiopian Microfinance Institutions in Extending Financial Services to the Poor? A Comparison with the Commercial Banks with Wassie Berhanu (Journal of African Economies  Volume 22, Issue 1, January 2013, Pages 112–135)

Abstract: This article investigates the efficiency of microfinance institutions (MFIs) in extending financial services to the poor by comparing their cost efficiency with that of commercial banks (CBs). Using an unbalanced panel data of fourteen MFIs and seven CBs for 2001–08 in Ethiopia, a stochastic frontier model is estimated in which heterogeneities (in the working environments and nature of businesses) between MFIs and CBs are controlled for in the cost function. The result indicates that the MFIs are, on average, 33.5% less efficient compared with the CBs mainly due to their smaller size, focus on outreach and reliance on non-commercial sources of funds such as donations. In fact, the largest MFIs are found to have cost efficiency scores that are comparable with that of the most efficient banks. Despite the wide efficiency gap, there is a strong evidence of convergence.

Working Papers

Gains from market integration: Welfare effects of new rural roads in Ethiopia

Abstract: This paper estimates the welfare gains from the construction of rural roads that connect agricultural villages to market centers. I take theoretical predictions from Ricardian trade models to a rich high spatial resolution micro data on agricultural production from Ethiopia, which coincides with a period of extensive rural road construction. I estimate that this road construction resulted in an approximately 13% increase in real agricultural income, on average, and show that this increase is attributed to the mechanisms suggested in the Ricardian trade model: the prices of villages’ comparative advantage crops increased, and villages reallocated land for these crops following decreases in trade costs.

Are refugees a burden or opportunity for the host? Evidence from Ethiopia (with Caglar Ozden)-R&R

Over 80% of nearly 90million refugees in the world are hosted in low and middle income countries with limited resources and infrastructure to support the refugees. In this paper, we study the effects of hosting refugees on the host communities in Ethiopia, which is one of the poorest countries and the second largest host of refugees in Africa. We find that under-5 children with higher exposure to refugee camps have lower weight-to-age z-score, lower weight-to-height z-score and higher mortality rate. However, higher refugee exposure is also associated with increased school enrollment and higher grade-to-age ratio for school-age cohorts, particularly for female students. The negative health effect is attributed to higher likelihood of contacting infectious diseases such as diarrhea, lower probability of receiving vaccinations, and hikes in prices of essential food items in areas with higher refugee population, whereas the positive effect on education is attributed to children in host community benefiting from increased school supply by NGOs for the refugee children. Our results are remarkably robust across a series of identification and measurement approaches

Works in Progress

How large is the productivity loss from misallocation?

Recent studies stipulate that large fraction of cross-country income differences could be accounted for by differences in productivity, which could be partially attributed to misallocation of resources across firms. Product market distortions, such large between-firm dispersion in markups, is considered as one of the main factors behind resource misallocation. In this paper, I quantify productivity loss from dispersion in markups and resource misallocation using firm level data from over 70 countries. Three main results emerge. First, productivity loss from misallocation is sizable, significantly varies across countries and is strongly negatively correlated with GDP per capita. Misallocation could explain about a quarter of cross-country variation in manufacturing productivity. Second, trade openness reduces the productivity loss from misallocation via reducing between-firm dispersion in markup (or revenue productivity). Third, the productivity loss from a counterfactual import ban significantly differs across countries, ranging from just under 5% in China to over 15% in a typical country with weak manufacturing sector, implying that the procompetitive effect of trade is more significant in countries with underdeveloped domestic manufacturing sector.

Firm capacity utilization (with Margaret McMillan) New draft coming soon

Abstract: This paper documents significant heterogeneity in firm capacity utilization rate (CUR) within and across countries. Firms in developing countries have lower CUR than those in developed countries. We develop a theoretical model to explain these facts and provide empirical evidences supporting the theoretical prediction using firm-level data from over 100 countries. Finally, we explore the implications of the heterogeneity in firm CUR on the measurement and comparison of TFP across firms within and across countries. We show that ignoring CUR leads to biased estimates of TFP and misleading comparison of productivity across firms, industries and countries.

Ethnic Heterogeneity and Domestic Trade Frictions

Abstract: Ethnic heterogeneity is associated with conflict, lower provision of public goods, and economic underdevelopment in many contexts. In this paper, I use spatial variation in prices of crops within and across ethnic borders in Ethiopia and show that: (i) ethnic borders explain significant fraction of spatial price variation conditional on road distance and spatial productivity gaps, and (ii) shocks to agricultural production have significantly weaker effect on prices across ethnic borders than within ethnic borders, conditional on road distance. I explore the role of two competing explanations–language barrier and inter-ethnic tensions, and find that both play important roles but the latter tends to have stronger effect.

Market Failures and within-farm resource misallocation

When household production decisions are constrained by thier consumption needs due to failure in product and/or input markets, resources such as land and labor are suboptimally allocated within farm. In this paper, I quantify the magnitude of productivity dispersion and resource misallocation within farm household, and the resulting household and aggregate level losses in productivity.