Determinants of export trade and its dynamics in Ethiopia

Abstract

The objective of this study is to examine the determinants of export trade and its dynamics in Ethiopia over the period 1972-2011. The estimation technique used is the simultaneous equation framework with Three Stage Least Square approaches (3SLS).The variables used as determinants of demand side are: the real effective exchange rate, real income of trading partners and trade Opnnenes. On the other hand, the variables used as determinants of export supply include: Gross domestic products, the ratio of price of exports to domestic price, Infrastructure which is proxied by Telephone per 1000 people and dummy variables used (since Ethiopia followed varying policy regimes). The data is collected from NBE (2011), EEA Statistical data base CD-ROM (2012), IFS, WB and MoFED. The estimated results indicated that real effective exchange rate and trade openness significantly affect the export value of Ethiopia. However, Real income of trading partners’ is insignificant. On the other hand, on the Supply side, gross domestic product, infrastructure and policy dummy have positive and significant impacts on export supply of Ethiopia. However, relative price (the ratio of price of exports to domestic prices), is negatively related to the supply of export suggesting that some commodities are diverted to the domestic market as their prices increase.