One of the contributions of the productive manufacturing sector is employment creation, strong linkages, and spill-over effects. It also accelerates long-term economic growth through targeted investment in productive capacity and manufacturing sector-driven growth. The study aims to investigate the main factors of total productivity of large and medium-scale manufacturing industries in Ethiopia from 2001 to 2017. Generalized Method of Moments of the econometric model system was applied to analyze the determinant factor of the total productivity of large and medium-scale manufacturing industries. The result confirmed that the loan provided to the manufacturing industries, the intensity of imported raw materials, human capital development , foreign direct investment, and infrastructure growth (road coverage) had a significant positive effect on the factor of productivity. Nevertheless, export intensity and macroeconomic instability(inflation) adversely affected the total factor of productivity. The descriptive analysis indicates that the number of firms, jobs created, and value-added per worker are increasing sustainably and are dominated by the agro-processing sector and mineral industries. However, there was no similar progress shown in manufactured exports. It affects by a shortage of supply of raw materials, weak infrastructure, absence of demand for products, and lack of working capital. The practical significance of this research allows creating a new idea of an investment that encouraged producers to improve efficiency and productivity using the result of the study. It also creates stable macroeconomic stability in the area of large and medium scale manufacturing industries and the country in general. Finally, it contributes significantly to the country’s economic growth and poverty reduction.

Keywords: Manufacturing, industry, productivity, determinants, generalized method of moment
 

Jel classification: L60, L69, D24