The Determinants of Export in Ethiopia, an Auto Regressive Distributive Lag Bound Test Approach

Abstract

This paper identifies some of the main determinants of export in Ethiopia for the period 1977-2016 G.C. Also the paper tries to include new variables such as the export diversification index and financial development as determinants that have not been previously considered. Moreover, the study used a bound test approach which has not been used in previous research in this area. To test empirically the relationship between export performance and its major selected determinants such as real gross domestic product, real effective exchange rates, financial development, export diversification index, terms of trade, total investment, trade openness, and major trade partner GDP per capita i.e. China. The bound testing approach of the co-integration and error correction model, within the Auto Regressive Distributive Lag Model framework, is developed. The estimated results show that all explanatory variables listed above significantly affect the export performance both in the short-run and long-run except for financial development and export diversification index. With the sign of coefficients, all determinates variable sign is consistent with economic theories. Finally, the finding indicates that policymakers should give emphasis on the determinants factor of export. Measures must also be taken to reduce the constraints deterring the performance of the export sector through diversifying and promoting exports by boosting domestic capital for exports, serving to transfer technology, developing new products for export, making access to new and large foreign markets easier, and improving technical and management skills and lowering barriers to the firm‟s entry and reducing international trade costs.