Regional Competitiveness and Economic Growth in Ethiopia; a Subnational Panel Data Analysis

Abstract Disparities in economic performance across Ethiopian regions remain a major challenge to sustainable development in Ethiopia. Although regional competitiveness is a key determinant of regional growth, little is known about its growth effect. This study examines the impact of regional competitiveness on economic growth using data from 9 regional states and two city administrations over the period 2013–2021. To this end, the system generalized method of moment (system GMM) estimator was used to control persistence and potential endogeneity of regional income. The findings show a strong nonlinear relationship between competitiveness and growth. The threshold analysis indicates that the specification's critical competitiveness levels are 47.11, including conflicts and 49.05, excluding conflicts, which improvements in competitiveness have no statistically significant impact on growth. Beyond these thresholds, it has a positive and statistically significant impact, indicating that regional development returns are rising at a higher level of regional development. The results also highlight that historical structural conditions continue to shape regional development trends, indicating a strong persistence of regional income levels. Moreover, market access and population density have a significant impact on regional growth, underlining the importance of spatial connectivity and the economy of agglomerations. Overall, this finding shows that regional competitiveness is a conditional driver of economic growth, and its impact depends on the underlying structural and institutional competences. Accordingly, the study highlights the importance of targeted regional policies tailored to development levels to achieve inclusive and sustainable regional development.