Determinants of Export Earnings in Ethiopia: a Time Series Analysis
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Date
2025-06-16
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A.A.U
Abstract
This study examines the determinants of Ethiopia’s export earnings using annual time
series data from the National Bank of Ethiopia (NBE) spanning 1991–2024, motivated by
the country’s persistent underperformance in export earnings despite its economic
potential. The research addresses the critical question: What factors explain Ethiopia’s
export earnings dynamics, and how can policymakers enhance export performance to
address foreign exchange shortages and drive structural transformation. The primary
objective is to identify long-run and short-run determinants of export earnings to inform
evidence-based policy interventions, employing Johansen cointegration and Vector Error
Correction Models (VECM) to analyze relationships between export earnings and five key
variables: real gross domestic product, terms of trade (ToT), trade openness, real effective
exchange rate (REER), and infrastructure (proxied by real capital expenditure). Results
indicate that in the long run, real gross domestic product, terms of trade, trade openness,
and infrastructure significantly boost export earnings, while real effective exchange rate
exerts a negative effect, reflecting competitiveness challenges from currency
overvaluation. Short-run estimates align with expectations, showing positive impacts from
all variables, including real effective exchange rate (consistent with the J-curve effect).
Thus high and sustainable economic growth, improvements in infrastructural facilities,
and maintaining a stable exchange rate policy as well as working to reduce trade
constraint mechanism should be given due emphasis so as to improve Ethiopia's export
earnings.