Browsing by Author "Shiferaw Gonfa"

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    Transmission Mechanism of Trade Liberalization Policy on Economic Growth in Ethiopia: Svar Approach
    (AAU, 2025-06-01) Shiferaw Gonfa; Girma Estiphanos
    This study aimed to investigate the transmission mechanism of trade liberalization policy on economic growth in Ethiopia by using Structural Vector Autoregression (SVAR) approach with annual data from 1991 to 2024. The study identifies both direct and indirect channels through which trade liberalization policy effect real GDP via foreign direct investment (FDI), inflation, and exports. The results from impulse response function (IRF), structural coefficient matrices, and forecast error variance decomposition (FEVD) provide robust empirical understandings. The finding of the study reveal strong direct effect with tariff rate shocks explaining approximately 19.1% of real GDP. Among indirect channels, tariff rate induced increases in FDI accounts for 0.85% of real GDP growth variance. In inflation channel, declines following tariff reductions contribute 3.5% to real GDP growth. The export channel remains weak, contributing less than 2% to growth, limited by structural constraints in Ethiopian trade sector. These results underscore that trade liberalization affects economic growth both in short and long run, immediate effects through increased FDI inflows and reduced inflation and over the long run evidenced by IRF and FEVD results that shows positive and sustained increase in real GDP growth. Keywords: Trade Liberalization policy, Economic Growth, SVAR, Ethiopia, Transmission Channels, Tariff Rate, FDI, Inflation, Exports