The Nexus Between Export Trade and Economic Growth in Ethiopian

Abstract

The main rationale for conducting the present study Starts with the controversies hypothesised by various theoretical and empirical litratures on causal relationship and the direction of causalty that still exist between export trade and economic growth. The main objective of the study were to empirically examine the nexus of export and economic growth in Ethipia by employing long run time series data covering 1980/81-2019/20. For the purpose of analysis; econometrics model with the VAR framework has been used. Inorder to test the stationarity condition and to select the appropriate lag length the ADF and AIC has been employed. The Jonson’s cointegration test was applied to examine if the variables of the growth model exhibit stable long term relationship. VECM has been constructed and estimated to examine long and short run dynamics of the cointegarated series. And also causality analysis between export trade and economic growth has been examined by using Granger causality Wald statistics. The empirical result from Granger causality Wald statistics reveales bidirectional causalty which is similar with the works of Odusola and Akinlo (1995) and Idowu, (2005) in Nigeria which run from export to economic growth and from economic growth to export. Therefore both export led growth and growth led export hyphothesis are inferred to the case of Ethiopian economy. As aresult government and policy makers in Ethiopia should strengthen their effort towards the development of export commodities on the one hand and stimulating the economic growth on the other.