Evaluating the Impact of Trade Preference Scheme on Ethiopian Export Gravity Model Approach

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To integrate least developed countries including Ethiopia in to international trade market, African Growth Opportunity (AGOA) and Everything But Arm (EBA) initiatives have been designed by U.S. and European countries respectively. The purpose of these initiatives is to enhance and diversify the export of the beneficiary countries. Therefore the purpose of this study is to analyze the effects of these programs on Ethiopian export. The study employs the fixed effect gravity model using panel data for the period 1974/75 -2005/06 of annual data. The main findings of the study show that AGOA has negative contribution to Ethiopian Export. This might be explained from both beneficiary (i.e. Ethiopia) and granting country's limitation. Poor infrastructure, lack of skilled manpower, poor public services, etc of Ethiopia is some of the limitation to exploit the scheme. Whereas un stability of the program, rules of origin, non tariff barriers are some of the factors that hinders the exploitation of the scheme. The result of the study also indicates that the European Union initiative has no significant effect on Ethiopian export. Like U.S. initiative this program has also its own limitations, but still Ethiopia has to identify the drawbacks in exploiting the program. The policy implication of the finding is that to exploit the program Ethiopia has to solve the drawbacks for her poor export performance. Especially she has to use export diversification strategy, i.e. the government has to peruse to diversify exportable commodities from agriculture to other products both vertically and horizontally in order to be competitive. Since most of export items relied on few primary products. In addition to this the government has to give due attention to improve social capital, skilled manpower, public services infrastructure etc. Key words: AGOA,EBA,EXPORT