The Impact of Aid for Trade in Ethiopia (Dynamic General Equilibrium Model)

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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



Dynamic CGE, SAM, Aid for Trade