EXPORT PERFORMANCE AND ECONOMIC GROWTH IN ETHIOPIA. By Kagnew Wolde March 200 7. Introduction. Like other SSA economies, the Ethiopian economy is essentially agricultural based and highly dependant on earnings of fragmented household agricultural activities.
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By Kagnew Wolde
- 1960/61-2003/04 = 13.04%.
- 1960/61-1973/74 = 8.2%.
- 1974/75-1990/91 = 4.7%
- Has showed improvement in the period 1991/92-2003/04.
- widened the balance of trade deficit,
- restrained the import of essential intermediate and capital goods,
- exacerbated the rise of external financing in the form of aid and credit.
Statement of the Problem
Significance of the Study
The first five-year development plan (1957/58-1961/62):
- the share of agricultural exports to trim down to 72.3% in 1966/67 from 93.6% in 1962/63
- manufactured products to wind up to 24.2% from 5.2%.
- aimed at orienting export structures of the country towards high value added products and increasing the amount and composition of manufactured exports, expanding the foreign exchange earnings, and increasing the socialization of the export sector.
- However, particular attention was given to state owned export companies heedless of their inefficiency.
- geographic diversification of exports towards the markets of socialist countries and neighboring African countries.
- average annual export growth rate was targeted to stand at 15.4%. State owned export companies were expected to take up 90% of the export business.
- to reduce the share of all traditional exports (coffee, hides and skins, pulses and oilseeds) to 53.2% from 73.5%.
- the share of other export products (live animals, meat products, fruits and vegetables, spices, sugar and molasses, natural gum, chat and others) was targeted to rise from 26.5% in1985/86 to 46.8% in 1994/95.
- devaluation of the Birr and step-by-step liberalization of the foreign exchange market,
- streamlining import and export licensing system,
- tariff reduction, and provision of incentives to exporters,
- abolishing taxes on exports and subsidies to parastatal exporting enterprises,
- encouraging export-oriented investment,
- introduction of duty draw back and foreign exchange retention scheme,
- minimizing administrative and bureaucratic procedures.
Where LRGDPt, LLt, LRGCFt, LRERt, LRMt, LRXt are the logs of output, labour, gross capital formation, exchange rate and export variables respectively. The coefficients β1….β5 are parameters and Ut is the random disturbance term. Equation (3) will form the basis of estimations in this study.
Where is the differencing operator, Yt represents the variables to be estimated (i.e. LRGDPt, LLt, LRGCFt, LRERt, LRMt, LRXt), is constant, is a the trend coefficient, U is the white noise residual of zero mean and constant variance and t is the time or trend variable. The null and alternative hypotheses may be written as follows:
Where ΔYt-1 is equal to (Yt-1- Yt-2), ΔYt-2 is equal to (Yt-2- Yt-3), etc. and m is the maximum lag length on the dependent variable to ensure that Ut is the stationary random error.
Zt = ……………………………9a
β2 = …….………9c
t = …………………..……9d
Maximum Eigenvalue Test
Where, ZYt-1 and Zxt-1 represent the error terms lagged by one period for the real output and real export equations, respectively. The coefficient measures the long run equilibrium relationship while 1, …, 6 and , … measure the short run causal relation.
Table 3: The Trace and Eigenvalues Tests there will be m equations similar to (5) and (6). These equations will have a matrix formulation similar to (9) except that β1 and β2 are now both m
- indicates that the much dependence on import has negatively affected the growth of the economy,
- tells us that the rise in imports slows down economic growth through affecting the country’s international reserves.
- the country had used to expend a great deal of foreign exchange on the purchase of military armaments during the regime of the Military junta.
- may also suggest that the imports of consumer durables and non-durables outweigh the imports of capital goods.
Table 4: The Estimates of the Long run Parameters
D(LGDP) = 0.424 *D(LLt) + 0.443 *D(LRXt) + 0.127 *D( LRERt)
(2.957) (2.15) (0.594)
- 0.073 * D(LRMt) + 0.027*D(LRGCFt) – 0.017 *Dummy - 0.525*ECMt
(-0.184) (0.325) (-1.943) (-3.356)
- Symptomatic of the lack of economic transformation and absence of structural change in the mode of production.
- Still primitive mode of production predominates in the major sector.
- the ardent need for a concerted effort to improve internal conditions and bring about diversification of the productive structure and curtailment of supply side constraints.
- Rehabilitating the domestic manufacturing industries and encouraging both private domestic and foreign investments.
- Maintaining export friendly effective exchange rate, lowering tax burden on exports and imports of inputs, providing exporters with easy access to foreign exchange for the purchase of intermediate items and preferential and/or lower interest rates on bank loans.
- Designing export promotion strategies, policies and support services conducive towards stimulating competitiveness remains crucial. Targeted and concrete export support services, product specific export market research, active participation in international trade fairs and instituting officially sponsored trade missions.
- Addressing sector specific bottlenecks.
- Exerting intensified efforts to identify key commodities to which Ethiopia has a comparative advantage and could diversify (e.g. expanding the production of horticultural and flower products, fruits and vegetables, livestock products, and exploiting apicultural possibilities).
- The government needs to work together with the business community inculcating an atmosphere of mutual trust and confidence building to persuade them engage in the export diversification policy making.