The Economy Wide Impact of Bio-fuel Investment in Ethiopia: A Recursive Dynamic Computable General Equilibrium Micro-simulation Analysis

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Addis Ababa University


The share of fuel import in total imports of goods for Ethiopia rose from 12% in 2005/06 to 20.1% in 2010/2011. In 2008 the country’s oil bill exceeded the total export earnings. The high and often fluctuating fuel prices have frustrated development efforts in the country. This has triggered policy makers to review the energy development strategies and search for mechanisms that minimize dependence on high-cost imported fossil oil. An important mechanism identified in this area is to substitute fossil fuels with domestically produced bio-fuel. Currently, investments in biofuel with the aim of producing ethanol and bio-diesel are underway in different parts of the country. This study investigates the impact of biofuel investments on growth, poverty and food security in Ethiopia using a dynamic computable general equilibrium (CGE) model linked to micro simulation (MS) model. The CGE model uses the 2005/06 social accounting matrix (SAM) and the MS model uses the 2004/05 Household Income, Consumption and Expenditure (HICE) survey. The results suggest that biofuel investment provide a new opportunity to enhance economic growth and poverty reduction. Our results also show the complementarities between ‘biofuel’ and ‘food’ production.



Economic Policy Analysis, Economic Policy