Browsing by Author "Marartu Alemayehu"

Now showing 1 - 1 of 1
  • No Thumbnail Available
    Item
    The Determinants of Ethiopia’s Balance of Payment: An Analysis of Disequilibria and Policy Implications
    (AAU, 2025-07-30) Marartu Alemayehu; Jonse Bane (PhD.)
    Ethiopia has been suffering chronic balance of payments (BOP) disequilibrium for decades, yet few studies have looked at the combined role of structural issues, policy shocks, and governance concerns, above all, political corruption, to explain this imbalance comprehensively. The present study fills the gap by analyzing the principal determinants of Ethiopia's BOP imbalance between 1974 and 2023 with a special focus on economic, structural, and policy-related variables across three political regimes. Using an Autoregressive Distributed Lag (ARDL) specification, the results from the analysis relied on data obtained from the National Bank of Ethiopia, World Bank, Global Economy, and government and research outlets. The long-run findings show that the exchange rate is statistically significant by itself, and hence currency depreciation is helpful in increasing the BOP in the long run. They have powerful impacts in the short term. FDI, external debt, inflation, and exchange rate as well as past BOP levels have powerful short-run impacts. Policy actions and anti-corruption measures also have negative short-run impacts accounting for transitional adjustment costs. The robustness of the model is verified by diagnostic tests. The results stress the pivotal role of exchange rate management to bring about long-run external balance and imply that exchange rate flexibility can be used to strengthen export competitiveness. Added to this, careful management of FDI and external debt can remove short-run external imbalances. Policy and governance reforms are mandated nonetheless, but these need to be sequenced properly in order not to trigger short-run volatility yet achieve long-run BOP sustainability