The Impact of Aid for Trade in Ethiopia (Dynamic General Equilibrium Model)
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2012-06
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Abstract
This study analyses the impact of aid for trade using Dynamic Computable General
Equilibrium (DCGE) model. It utilized the updated 2005/06 Ethiopian SAM. In order to
investigate the effects of foreign aid having aid for trade benefits, seven simulations were
made with percentages employed based on empirical evidence. First, an increase in
foreign aid is introduced to show the impacts of foreign aid only. Consecutively, aid for
trade benefits are included with an increase in aid. The model shows an appreciation of
exchange rate and decline in exports due to an increase in aid inflows. However, when
aid for trade is included, export increases by far compared with the aid only result.
Among the aid for trade interventions, aid for building productive capacity more than
offsets the appreciation of exchange rate and decline in export that follow the inflows of
foreign aid. Furthermore, the other aid for trade benefits also at least partially offset the
decline in export and appreciation of exchange rate. The results are not sensitive to the
change in the simulated percentages. The study in general implies foreign aid that has
trade benefit component improves export in Ethiopia.
Key word: Dynamic CGE, SAM and Aid for Trade
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Dynamic CGE, SAM, Aid for Trade