Determinants of flower export in Ethiopia: an empirical investigation

Abstract

The economy of Ethiopia is characterized by low level of foreign exchange earnings from export as compared to foreign exchange earning required for importing goods and services. Increasing foreign exchange earnings by enhancing export sector required diverting export from traditional primary products to non-traditional commodities. Flower is one of the nontraditional commodities which can be produced and exported with lower cost in Ethiopia. The sector attracts the attention of policy makers in recent times of Ethiopian economy. This paper examines determinants of flower export performance in Ethiopia. The study employed gravity model and a panel data collected from different sources depending on the availability of the data and interest of the study to empirically analyze the determinants of flower export performance in Ethiopia for the period 2004/05 to 2018/19 over ten major importing countries of Ethiopia’s flower based on its value of flower imported from Ethiopia. Based on the Hausman test random effect is appropriate to estimate the model for flower export of Ethiopia. Using random effect method of analysis the study found that from the demand side determinants per capital income of trading partners and population of importing country have positive and significant impact on flower export performance, while distance between the two trading nations, and real effective exchange rate have negative and significant impact on flower export performance. Whereas on the supply side determinants trade openness and real GDP of exporting country have positive and significant impact on flower export performance, While FDI and domestic population affect flower export negatively and significantly. Foreign currency reserve has negative and insignificant impact on flower export performance. This may be resulted from increase in foreign currency reserve increases import other than affecting export. Therefore the study concludes that both demand and supply side determinants have significant impact on flower export performance of Ethiopia so the government, exporters and policy makers on the sector should be due emphasis given for both demand and supply side determinants to improve flower export.