Determinants of Export Performance of Ethiopia: A Gravity Model Analysis
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Date
2009-06
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A.A.U
Abstract
The purpose of this paper is to identify and empirically analyze determinants of export
performance of Ethiopia. We began with a novel decomposition of the growth in countries'
exports into the contribution from internal supply-side and external market access
conditions. Building on the results of this decomposition, we moved on to an econometric
analysis of the determinants of export performance. We employed a gravity model with a
panel data using 30 Ethiopia's trading partners for the period 1995- 2007. Our model has
been estimated with Generalized Two Stages Least squares (G2SLS) estimation. Endogeneity
of FDI and GDP to export, heterosckedasticity, and serial correlation for AR (1) are
controlled. The estimated result suggests that internal supply side conditions are one of the
major factors for export performance of Ethiopia . The result shows that good institutional
quality and internal transport infrastructure appear to be major determinants; whereas real
exchange rate and FDI have no statistically significant effect on export performance of
Ethiopia. Furthermore, the growth of domestic national income affects Ethiopian exports
positively. According to the estimated result, foreign market access conditions also playa
significant role. The result indicates that import barriers imposed by Ethiopia's trading
partners do play an important role in determining the volume of Ethiopian exports.
Moreover, export performance is positively related to Ethiopia's trading partners ' income
and distance, which is a proxy for transport costs, affects Ethiopian exports negatively.
Key words and phrases: Ethiopia; Export; supply side factors; external market access
condition; Gravity model
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Keywords
Ethiopia; Export, Supply Side Factors