International Economics

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Revenue Productivity of the Tax System in Ethiopia
(A.A.U, 1998-05) Zelalem, Yoseph; Kambou, Gerard (Dr)
This paper studies the role played by built-in- tax elasticity and discretionary tax measures in the government's efforts to reduce the budget deficit and finance development in Ethiopia. The estimation results demonstrate an income inelastic tax system. Analysis of the components of the overall tax elasticity brings out the generally low value of the tax -t o-base relative to base to income as a key factor in explaining the low elasticity of the tax system. The main reason for the low tax-to-base elasticity is inefficient and poor tax administration and the existence of large exemptions. Therefore the increase in total tax revenue has been mainly due to discretionary tax measures. The DTMs were found to be an effective policy instrument both forraising additional revenue and for of effecting a shift from the taxation of international trade to the taxation of domestic transactions. These results have important implications for tax reform. There is a need to evolve an elastic tax structure since it implies that tax collections will grow automatically with the growing economy without resorting to frequent, potentially sensitive discretionary changes in tax structure . This mainly requires establishing a strong tax administration, reducing or eliminating exemptions, introducing lower rates, and broadening the tax base.
Revenue Productivity of Tax System in Namibia (1967-1997)
(A.A.U, 1999-06) Benethelin, Zaaruka; Geda, Alemayehu (Dr)
This study evaluates the revenue productivity of Namibian's overall tax system and of individual taxes on the basis of estimates of tax buoyancy and elasticities. The main aim of the paper is to raise government awareness to the need in strengthening the existing tax system as a way to generate more revenue to cut down the seemingly widening budget deficits. A study of this nature is needed to encourage the government to act quickly given the major changes which are taking place such as the renegotion of the Southern Africa Customs Union (SACU), which may result in reduction in revenue to the government. The analysis shows that the tax system in Namibia is highly elastic and also buoyant, as the coefficients, which are more than unity, show. For individual taxes, the high elasticity is found on international taxes such export duty on diamonds, followed by the customs receipts. The direct taxes such as taxes on income and profits are found to be inelastic. It is to be noted that the elasticity of the tax system to a great extent reflects the role played by external factors, which are beyond the control of the government. Namibia, therefore, has to strengthen domestic tax structure and reduce reliance on sources of revenue beyond its control, simultaneously reducing its expenditure.
Trade, Trade Policy and Economic Growth in Sub-Saharan Africa
(A.A.U, 2005-06) Gedefe, Kiflu; Adinew, Berhanu (Dr)
In the SSA region poor trade and economic growth performances co-exist with a relatively protective trade policy for the past three-decade. Some consider such protective trade policies as the main causes of slow economic growth in the region. With an objective to see the impact of trade and trade policy on economic growth, this paper employs a pure cross-sectional as well as panel data (including panel co-integration) analysis techniques. We have controlled the observed endogeneity of trade by using a simultaneous equations regression (2SLS method), and we also run regressions with robust standard errors to handle problems related to the normality and homogeneity assumptions. Accordingly, while we have found trade shares (and also import and export shares in GDP) to be significantly and positively correlated with growth, we get no evidence in support of trade liberalization policies. That is, even if the trade policy variables reveal a significantly negative impact on trade, they failed to show the same effect on growth contrary to the conventionally alleged benefits of trade liberalization policies. The results show that there is a positive but insignificant correlation between import tariff and economic growth whereas taxation of exports reveals a positive but insignificant correlation. This shows the "possible" gains and losses from a premeditated import protection and excessive export taxation respectively. Key words: Trade and economic growth, Trade Policy, Panel data analysis
Towards an African Economic Community: A Performance Evaluation of African Regional Economic Communities
(A.A.U, 2005-06) Gebremedhin, Liyousew; Mulat, Teshome (Dr)
Regional integration has always been an agenda for the heads of states of African nations, since it is considered as the major step towards an accelerated and sustained development of the continent. This familiar agenda finally succeeded in establishing the African Economic Community (AEC) in 1994 targeting a continent wide unity in a period of 34 years. Seven regional economic communities (RECs) were chosen to be the building blocs of the AEC. A performance evaluation of these RECs conducted in this study showed that ten years after the birth of the AEC no REC has yet to transform itself into a free trade area. Trade liberalization in terms of tariff and non tariff barrier removal, trade facilitation, and macroeconomic policy harmonization programmers arc all behind schedule. Intra REC trade progressed little and dependence on trade with third country is still predominant. Fitting the gravity equation with panel data and controlling for country pair heterogeneity, this study confltl11s that the standard gravity variables; national income, distance and population (as well as explanatory variables such as contiguity, common language and membership to RECs) determine bilateral trade flows in Africa.
The Behaviors and Dynamics of the Real Exchange Rate of the’ Birr’ After the Economic Reform
(A.A.U, 2005-06) Demeke, Tamiru; Admassie, Assefa (Dr.)
The paper adopts a single equation approach to examine the real exchange rate behavior and exchange rate misalignment after devaluation and foreign exchange I' ate liberalization. The paper finds that real exchange rate and the macroeconomic fundamentals affecting real exchange rate are co integrated. It also shows that devaluation, foreign exchange market liberalization and some of the policy measures taken by government such as reducing government consumption and deficit, new investment policy and other measures that increase the capital il'iflow narrow the gap between the parallel market foreign exchange rate and the official market foreign exchange rate, make the behavior of the real exchange rate fairly variable. In other words, the misalignment of the real exchange rate declines and the exchange rate movement becomes more stable. These are the desired goals that could be achieved by the devaluation of the exchange rate and through foreign exchange rate liberalization.
Valuing Non-agricultural Uses of Irrigation Water: Empirical Evidence from the Blue Nile River-basin of the Amhara Regional State, Ethiopia
(A.A.U, 2005-06) Bane, Jonse; Mekonnen, Alemu (Dr)
Using the contingent valuation method (CVM), the study sets out to analyze detemtints of households WIP, estimate total WIP of and derive aggregate demand for non-crop uses of irrigation water. the study used cross-sectional data corrected from 260 housefiolds in the Blue Nife River Basin of the Amhara Regional State of Ethiopia through double-bounded value elicitation format with open-ended follow up questions under detailed descriptions of two different scenarios, namely, existing and improved irrigation water supply for domestic uses. 'The empirical models adopted by this study are profit and vibrate profit models. Results of the the study reveal that respondents ' WIP is affected by a number of explanatory variables including institution-related variables such as water users associations (WUAS) water father and commtmity-based water management and choices of these institutions, and socio-economic variables like income, wealth, ownership of ox, age, education and family size of respondents. Although females are responsible to fetch water for domestic uses, being a female has no significant effect on the probability of accepting the proposed did. Specific location of users, site, quantity and quality of irrigation water for domestic uses are other explanatory variables that affect consumers ' WIP for non-crop uses of irrigation water. the study also finds that using double-60unded value elicitation techniques does not improve statistical efficiency over sing{e- bounded format. Total WIP for gardenil1iJ and domestic use of irrigation water is estimated 6ased on open-ended and single- 60unded value felicitation formats and our scenarios. Assuming existing irrigation water quality, total WIP for these uses of irrigation water is 'Birr 291, 776 and 363,063.6 per year using open-ended and single-bounded mean WIP, respectively. After proposing quality improvement for domestic uses o/irrigation water but with existing quality for gardening, the respective total WIP increases to 'Birr 361,336 and 409,441.6 per annum. the following policy implications are derived from the study. :First, facilitating establishment and strengthening capacity of WLLAS through decentralization could improve efficient and eqttita6Ce uses of irrigation water. Second, since households are willing to pay for multiple uses of irrigation water, introducing pricing in irrigation water uses may be promising. Finally, considering multiple uses of irrigation water in developing and implementing irrigation water projects ensures sustainability and reduces conflicts among uses and users of irrigation water.
Determinants of Agricultural Exports in Ethiopia
(A.A.U, 2005-06) Mulugeta, Mouze; Mekonen, Alemu(Dr)
In addressing the dismal performance of the export sector in Ethiopia, it is important to look at the percentage contribution of each sector and also the factors that affect the growth of the respective sector. Analysis of sectoral contribution to international trade confirms that in Ethiopia agriculture is found to be the single most important sector in terms of revenue generation contributing over 80% of foreign exchange earnings. Thus, in trying to disentangle the effect of each policy instrument, we have used secondary time series data for 30 years where analysis of factors behind growth of the sectoral contribution suggests that output has been responsive both to price and structural factors emphasizing the importance of both factors as a tempo for growth in the agricultural sector. Results from the study indicate that price policy instruments such as real exchange rate devaluation and institutional factors such as fertilizer consumption do have a significant and positive impact on aggregate agricultural exports. Results from individual export product (chat) are also in conformity with the above result suggesting that policy makers should use both to expand export from the sector.
The Determinants and Dynamics of Aggregate Merchandise Imports in Ethiopia
(A.A.U, 2005-06) Leggesse, Dejene; Aredo, Dejene (Dr.)
Ethiopia imports goods and service s under serious foreign exchange constraint. Export ",earnings finance less than fifty percent of imports . For this reason there was excess demand for foreign exchange in the past four decades . The purpose of this study is therefore, to characterize the behavior of demand and determinants of imports in Ethiopia . The study used error correction and co integration as well as descriptive analysis. In the short run, one of the most important determinants of aggregate merchandise imports in Ethiopia is found to be foreign exchange availability in the form of international foreign exchange reserves. Economic activity (real GDP) , the relative prices (in this study the real exchange rate) have no significant influence in the short run. However, all together with international reserves have significant influence in the long run . The other important determinant of imports both in the short and long run is trade policy regime. Openness of the economy had given rise to magnified and accelerated growth in imports. One important implication drawn from the analysis is that the need for export promotion and diversification measures in order to fill the fast growing trade deficit.
Trade Liberalization and the Balance of Payment: Empirical Evidence from Ethiopia
(A.A.U, 2005-06) Chala, Bayisa; Estiphanos, Girma(Dr.)
The effect of trade liberalization on the trade balance and current account of the balance of payments is controversial irrespective of the framework used for the analysis of balance of payments. In the partial equilibrium farm work of the elasticity approach, the effect will depend on the extent to which export and import duties change and the price elasticity of exports and imports. In the general equilibrium framework of the absorption approach to the balance of payments, the effect of liberalization 'will depend on how real income is affect relative to real consumption expenditures. In the monetary approach to balance of payments, the liberalization could affect both demand and supply of real money balances. The aim of this paper is to examine the empirical analysis of the balance of payments consequences of trade liberalization of Ethiopia. It focuses on the impact of trade liberalization on the trade and current account balances of the balance of payments. The main question addressed is whether there has been an improvement or deterioration in these accounts following trade reform. The data analyzed by estimating the time series econometric models using OLS and ECM frame works to test the impacts of trade liberalization on trade balance and the current account of the balance of payments in the short-run and the long-run. It uses a regression model formulation, which includes domestic and world real income; real effective exchange rate and money so that the monetary, elasticity and absorption approaches to the balance of payments are also examined. The main findings are that trade liberalization has worsened the balance of trade and the current account balance deficit, because imports have increased more rapidly than exports. The results show also that real effective exchange rate does playa role in determining the long-run equilibrium behavior of the Ethiopian trade and the current account balance. The coefficient of domestic money supply variable is negative and statistically significant. This implies that domestic money supply has an effect on trade and current account balance
The Impact of Trade Liberalization on the Trade Balance and Economic Growth: The Case of Ethiopia
(A.A.U, 2005-07) Bizuayehu, Anteneh; Estiphanos, Girma(Dr.)
The objective of the study is to asses the impact of trade liberalization on the trade balance and economic growth. The study employs an Error Correction Mechanism (ECM) to investigate relationship between trade balances and trade liberalization variables using annual data over the period 1970- 2002. Moreover, a balance of payment constrained growth model is used to assess the effect of trade liberalization on economic growth of Ethiopia. The empirical result of the descriptive and time series analysis suggests that trade liberalization has not reduced the trade balance as theoretically expected. However, the process has aggravated the trade deficit at least in the short run. The major explanation for this dismal trade balance is attributed to the imbalance between the country's exports of primary commodities and its imports that are mainly composed of capital and consumer goods. Trade liberalization efforts have aggravated the existing imbalance by inducing more imports than exports. Moreover, the terms of trade variable is found to have profound effect on trade balance. The analysis conducted with respect to the impact of trade liberalization on economic growth using Balance of Payment Constrained Growth model demonstrates that the income elasticity for import demand increased to 2.05 after liberalization as compared to 0.75 during the pre liberalization ion period. Moreover, the study finds out that the actual growth rate has been constrained by the Balance of Payment position after trade liberalization. As a whole, Trade liberalization per se did not improve the trade balance and economic growth, which can be partly attributed to the structure of exports and imports. Hence, the ma in policy implication of the study is that the country should improve the structure of production and income elasticites of demand for exports, which involves the diversification of the existing primary commodity exports into manufactured goods.
The Impact of External Debt on Economic Growth in Ethiopia
(A.A.U, 2005-07) Gebrekidan, Abinet; Alemu, Getne t(Dr.)
A group of low-income countries classified as HIPCs have continued to experience difficulties in managing and servicing their huge stocks of external debt. Most of these countries including Ethiopia are in sub-Saharan Africa. The relatively high level of Ethiopia's external indebtedness and rising debt burden has serious implications on the country's development and debt sustainability initiatives. While the economic performance continue to deteriorate, there have been significant net outflow of resources to meet the debt obligations. Tile study pin downs vital role of the emerging field of external debt and debt indicators in the Ethiopian economy with emphasis on empirical relationship of external debt and economic growth over the period 1963/64-2003/04. In doing so, this paper examines the magnitude and structure of the country's external debt, and its impact on economic growth across its three economic regimes. Using time series data for the same period, the empirical results indicated that past external debt accumulation has a negative impact on economic growth. Debt servicing also appears to affect economic growth adversely. Several policy implications emerge from the study. The simultaneous attainment of sustainable levels of economic growth and external debt appear difficult at the moment and could remain elusive if aggressive measures are not undertaken. The results obtained from this study support the need for Ethiopia to be considered for comprehensive debt relief measures. In addition, creating credibility including political will to reforms is required to spur investor confidence for both local and foreign investments.
Analysis of Causality and Export-Led Growth Hypothesis (ELGH) in Ethiopia
(A.A.U, 2005-07) Adem, Mohammed; Yoseph, Getachew ( Ato)
It is generally believed that for a developing country export performance plays a pivotal role in providing the much-needed impetus for economic growth. Export-led growth has been put forward as the efficient alternative to inward- orientation strategies of development. This is because it is believed to lead to higher total-factor-productivity growth and encourage foreign direct investment. In spite of the presence of numerous studies on the relationship between exports and economic growth, empirical investigations to-date have produced mixed or contradictory results; while most cross-section studies have found a positive association between export and growth, a considerable number of time series methodologies found mixed results, either supporting or rejecting the export-led growth hypothesis. This paper examines the Export-led growth hypothesis (ELGH) for Ethiopia for the period 1960-2004. It builds up on Feder's (1983) model to investigate empirically the relationship between exports and economic (GDP) growth using recent data from the National Bank of Ethiopia. The study finds that the ELGH is valid in this particular case but, only in the long run. Although the results of the study suggest that exports have a positive effect on the overall rate of economic growth and could be considered an "engine of growth" as the ELGH advocates, their impact was not, however, statistically supported in the short-run. , Moreover, causality was found running from GDP to Export confirming uni-directional causality.
Trade and Industrial Policies in East Asia: In Search of Lessons for Africa
(A.A.U, 2006-07) Samaro, Zinabu; Geda, Alemayehu (Dr)
Most African economies have not achieved any significant level of industrialization and export diversification to date; And so, The continent remains the least industrialized in the world in response, With strong conviction that economic theory has irrefutably Proved the superiority of free trade and Laissez fair industrial Policies, The governments and international economic institutions of the developed countries have been Pressurizing african governments to Fee their external trade and minimize their involvement in the form of industrial Policies. Under such a context, This study analyzes the trade and industrial Policy experiences of three East Asian countries. It also analyzes the terms of trade implications of export diversification in to manufacturing under the context of new export pessimism" Using data for six east Asian countries. the study, finds that the governments of the countries studied deliberately and Consistently employed Policies that are against the Fee trade and laissez-fire paradigms and resorted to a strategic approach to industrial development and international trade. the study also finds that export diversification into manufacturing have had a Positive impact on the terms of trade of the countries studied and therefore. It suggests selective dynamic, Predictable and performances based Protection and Promotion of infant industries conceptualized to the current global conditions and where the government has the willingness and the ability to withdraw the Protection and Promotion.
The Effect of Foreign Direct Investment on Trade Balance: The Case of Sub Saharan Africa
(A.A.U, 2006-07) Bessir, Mengistu; Manohar, J (Dr)
Economists usually consider that FDI affects import share and export share positively. But the nature of FDI flow varies across regions there by having different impacts on the region under study. This paper examined the impact of FDI on trade balance and its components (export and import) for sub saharan africa region . This paper empirically proved that FDI affects import share and export share positively and at a statistically significant level. The results from cross sectional and panel data regression reveal that the impact of FDI up on trade share, import share and export share is strong . Almost all the regression results indicate that FDI affects these variables at a 1 % significance level. However the magnitude of FDI in import share is consistently higher than that of export share; indicating that the net impact of FDI on trade balance is negative. moreover this paper proved that import tax does not affect import share at a statistically significant level in the case of Sub Saharan Africa. This may be due to the fact that most of sub Saharan Africa imports are structural and do not respond sensitively to price increment
Household Demand for Improved Water Services in Urban Areas: The Case of Addis Ababa, Ethiopia
(A.A.U, 2006-07) Fessha, Medhin; Yesuf, Mahmud (Dr)
This paper analyzes determinates of households willingness to pay for improved water Service, using the Contingent Valuation Method (CVM). The study used cross sectional data collected from 250 households living in different areas of Addis Ababa, Ethiopia through single bounded elicitation format with an open ended follow up question using a face-To face interview. The empirical models adopted by determine factors influencing households' decisions to connect to the pipe water scheme are probate and to bit models. results of the study revealed that respondents' WTP is affected by a number of explanatory variables including sanitation facility, Water related disease and socio -Economic variables like income, Age, Sex, marital status, Education level and family size of the respondent etc. The mean WTP for private Connection Is found 20 cents per bald and 15.79 cents per bald from closed ended and open-ended question respectively, Which are well above the current subsidized tariff. the following policy implications are derived from the study. First, The positive and significant relation between sanitation facility and WTP implies that improving sanitation service could not be done alone rather it has to go hand in hand with improvements in piped water supply provision. Finally, The revenue and households' Welfare gain in changing the existing policy (low trail with limited unreliable private service and hence low level equilibrium) to a new (higher tariff with more and improved private connections) can be huge.
How Central Bank Responds to Macroeconomic Shocks? Specification, Estimation and Analysis of Monetary Policy Reaction Function: The Case of Ethiopia (1991-2005)
(A.A.U, 2006-07) Sime, Zerayehu; Hasan, Seyad (Dr)
This paper presents a model of monetary policy in Ethiopia after financial liberalization policy adopted. It is designed to identify both the goals and patted of policy with the two major aims: firstly to know the way how National Bank of Ethiopia systematically responds to macroeconomic shocks and secondly to evaluate the performance monetary policy against its initial objective including assessment of gap analysis in monetary policy frame work. Hence, the model demonstrates that the National Bank of Ethiopia chooses the domestic credit as the most appropriates indicator of monetary policy with the determinants of net foreign assets, consumer price index, fiscal gap, real effective exchange rate and Gross Domestic Products to formulate the reaction function. On top of this the empirical results explain that domestic credit has strong long run & positive relation with net foreign assets & to real Gross Domestic Product. But it has short run relation with consumer price index, real effective exchange rate and real Gross Domestic Product at different lag structure. The NBE followed a combination of both accommodating and stabilization monetary policy. The Coefficients of equilibrating error terms, ECM suggest that the speed of adjustment! feed back effect towards the long run equilibrium takes many years for full adjustment when there is a shock in the system, indicating t he longer lags structure and undeveloped financial sectors resulted in obstacles for the effectiveness of monetary policy. Regarding to the evaluation of monetary policy objectives up on short run dynamics model , Both low inflation rate and reduction of monetization of fiscal deficit can be maintained in the review period while achieving the interactional reserve target is not fully under the control of NBE. Basically, the attempts of NBE to maintain the growth rate of money supply at the rate of nominal GOP growth has been satisfactorily met in the review period The sterilization coefficient revealed incomplete sterilization activities while the offset coefficient tell us a highest degree of monetary control with low degree of capital mobility. Therefore in general due to the non-existence of a well-developed secondary market, the lack of latitude to engage in discretionary activities, and partial monetization of the economy make the monetary policy implementation ineffective.
The Determinants of Current Account in Ethiopia: Empirical Investigation
(A.A.U, 2006-07) Alazar, Mehret; Rao, J. Manohar (Dr)
This study analyzes the role of fundamental macroeconomic variables in explaining the movements of the current account balance in Ethiopia. The descriptive analysis on the developments of current account balance using the three relationships: external trade, income-absorption and saving-investment in the period 1960/61 - 2002/03 indicates that: (i) Poor export performance due to dependence on primary commodities with unmatched rate of growth with imports is the main reason for the persistence current account deficit; (ii) The increase in budget deficit in addition to the low level of saving is the reason indicated for persistence of current account deficit by saving - investment balance; (iii) Huge military expenditure during the degree régime and 1998 20000 and increase in government expenditure as a result of increase government involvement in the derge regime are implicated for the persistence current account deficit in the income - absorption balance. The estimated model using Johannes’s likelihood ratio test for cointegration indicates that young dependency ratio, openness, financial deepening, terms of trade and real exchange rare affect current account both in the long run and short run; budget balance, parallel marker premium and ODA affect current account only in the long run and domestic output growth rate affect current account in the short run. The policy implication of the findings is that diversifying exports, reducing budget deficit and controlling distortionary policies of exchange rate.
The Effects of Water Sanitatiion on Child's Mortality in Rural Ethiopia
(A.A.U, 2006-07) Getachew, Zerihun; Paul, Issac
The Ethiopian population is very young, with nearly half (43%) of the population under the age of 15 years. This indicates that there is high potential for future rapid growth of the economy by using this population. Women and children constitute 72% of the population. Like in many developing countries, children under 15 years of age constitute a very large proportion of its population, (43%), of which around 40% are under five and 8% are under 1 years of age. In 2000, the under five-mortality rate (U5MR) was estimated at 166 per 1000 live births (148.6 for urban areas and 192.5 for rural areas), while infant mortality rate was estimated at 97 per 1000 live births respectively. Diarrhea is a major cause of death in infancy and childhood, and it is more common in rural areas where 25% of under five children are susceptible than urban areas where it is only 17%. Currently, the coverage of safe drinking water and latrines remains very low at about or less than 30% and 13% respectively. In rural areas only 4% of children's stool disposed in toilet whereas in urban areas 45% of the children's stool is disposed in the toilet. And 68% of the children's stool in rural areas is disposed outside the dwelling, or thrown in the yard. These low levels of access to safe water and access to excreta disposal are indicators of water and sanitation problems which are believed to be among the major causes of the child 's death in the post neonatal and childhood periods. However, the total fertility rate is 5.9 per woman (3.3 for urban and 6.4 for rural) (DHS Ethiopia, 2000), and this implies that there are distinct differences by residence, with rural women having twice as many children as urban women. Thus, the relatively high child mortality, which is in line with the theory of the effect of infant and child mortality on fertility may have led to increased fertility where mothers give birth to many children suspecting that the probability of losing some of them is high. VII The National Health Indicators for the year 200314 indicate that access to safe water and access to execrate disposal are estimated at 37.5 and 28.9 percent respectively taking a sample of 10 cities in the country (Ministry of Health, 2004). Therefore, the communicable diseases attributable to poor sanitation, and which principally affect the underprivileged sections of the population, are still deemed as the major health problems in Ethiopia. In line with this, this project investigated the effect of household environmental characteristics, that is, water and sanitation on the probability of child mortality. The analysis is conducted using a Cox Proportional Hazards model. It is a multivariate model of the child's life duration, which analyses the effects of household's environmental characteristics such as water a nd sanitation 0 n the likelihood of the child's death. Moreover, the study found that improved water supply results in both infant and child mortality reduction. However, the availability 0 f sanitation facilities per s e could not result in mortality reductions unless due attention is given for promoting awareness of the rural society on hygiene practices.
Valuing Water Supply Service Improvements in Addis Ababa
(A.A.U, 2007-03) G.Egziabher, Kinfe; Adnew, Berhanu (Dr)
Using The Contingent Valuation Method (CV M) the study sets out to analyze determinants of households ' WTP, estimate total 'W'TP, and derive aggregate demand and aggregate benefit for improved water supply service. the study used cross –sectional data collected From 240 households in Addis Ababa, the capital city of Ethiopia through closed-ended Value elicitation Format with open-ended follow up questions. The empirical models adopted by this Study are Probit and tobit models. The tobit Models is used to identify socio-Economic Factors that affects the WTP Of households and to estimate Aggregate demand and aggregate benefits For the Proposed 'improvement Water Supply Service. The Profit model is used to calculate the Mean WTP For the closed-ended format. Results of the Study reveal that about 38.72% of the respondent reported that they do not have Private tap connection to the existing system. The majority of the households (83.82%) also indicate that they are not Satisfied Wife the existing Water Supply Service. the Mean Per capita consumption of water is Fauna to be 37.6 liters Per day Which is for lower the absolute Minimum UN Standards (50 laced)the Mean WTP values are 15.34 and 20.20 cents Per boldi (a 20 liter bucket) for the improved Water Supply Service as calculated from the to bit and Profit model respectively The householdsWTP for improved water service is greater than the existing water tariff rate of the authority. The totalWTP amount from the sample of 126,108 households in Addis Ababa sub-cities was found to be birr 154, 198.26 Per day The area under the demand curve represents the gross value of consumers surplus which is Birr 181,935.36 Per day if water is considered as a Free good but water is an economic good and if a new tariff rate of the authority Proposes to be 8 cents Per bald the consumers' surplus will be reduced to birr 94,397.85 Per a day. The rest of the benefit is distributed to the water autliority birr 80,364.96 in the Form of revenue and birr 7,172.55 as a dead Weight loss Per day. the to bit model shows that there are s searal explanatory variables that affect the WTP value. Income of the household Sex.. of the respondent dummy (Female = 1), education (both secondary and tertiary level), households ' Year of Stay, households not using tank as a Storage, wealth of a households, occupation of the respondent dummy (employed = 1) I household s satisfaction with the existing service, and location of the study site (Addis ketema) have Positive and significant effects on 'willingness to Pay. Family size has negative and significant effect on willingness’s to Pay. the Policy implication of the study is that the inhabitants of Addis Ababa city are witting to Pay for improved water supply Service if it is Provided For an affordable Price. In addition, Policymakers need to be aware that socio economic Characteristics and water use Practices of households influence the willingness to Pay for better water services.
The Value of Water Quality Improvement on Lake Hora-Arsedi
(A.A.U, 2007-03) Legesse, Haymanot; Berhanue, Wassei(Dr)
Surface water quality affects the wellbeing of local community and thus an improvement to Lake Hora-Arsedi would benefit beshoftu residents. An Improvement proposed in this study is improving the quality of waler in the lake one step from how Beshoftu residents perceived the existing water quality. In this study, an attempt was made to elicit the willingness to pay (WTP) of Beshoftu residents to this improvement using contingent valuation method. A total of 250 households from Beshoftu town residents were selected randomly. The study used the single bounded dichotomous choice technique followed by an open-ended question for eliciting the Willingness to pay of household for the lake clean-up. probit and tobit models were applied to identify factors affecting WTP. The mean willingness to pay estimate, birr 11.42, from closed ended format aggregated for the total population and total willingness to pay of the residents was found to be 119, 893 birr per month and 1,438,716 per annum. While the mean Willingness to pay estimate from open-ended mean willingness to pay estimate, 5.02 birr, this total Willingness to pay was found to be 254,152 birr per month and 3,049,825birr per annum. The study revealed that the distance of the respondent's homestead from the lake, perception of the existing lake water quality, awareness of environmental Problems, income of the respondent, sex of the respondent and family size are factors significantly affect the willingness to pay of a household for lake clean-up. The policy implication of the study is the government or any concerned body could have active Participation of local community by enhancing environmental consciousness of residents and creating awareness 011 the benefits associated with improved lake water quality through meetings and seminars. Moreover, the concerned body should consider the case of major sources of lake pollution and take measures without wasting time to improve the lake water quality

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