Empirical Investigation of the Impacts of Foreign Exchange Shortage on Trade and Economic Developments of Ethiopia
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Date
2020-05
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A.A.U
Abstract
The study examined empirically the impacts of foreign exchange shortage on trade and economic development of Ethiopia over 1991 to 2019 by using dynamic ordinary least square methods. The findings shows that there is scarcity of foreign exchange (expressed as a gap between demand and supply) caused mainly by poor growth of exports and unproductive imports of foreign goods. The empirical result from the value of import demand equation show the existence of log run relationship between imports and foreign exchange receipts through export earnings and so low foreign exchange receipts have significant impact on imports of goods and services. Concerning to investment equation foreign exchange receipts was insignificant to promote domestic investment. On the other hand, foreign direct investment and imports of foreign goods were positively significant and have long run relationship between domestic investment processes. Furthermore foreign exchange receipts impact on economic growth was insignificant and negative to determine the growth rate of Ethiopia. Other variables like, imports of goods, foreign direct investment inflow and domestic investment facilities found out positive and significant impact on economic developments. This implies that the positive impacts of foreign exchange receipts on growth and investment were disappear due to control of its impact through imports of foreign goods for domestic investment purpose and intern facilitates production process of the country. The major policy recommendation that the researcher pointed out to minimize the problems were diversifying the export sectors and creating suitable environment for FDI.
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Keywords
Dynamic ordinary least square, Economic growth, Foreign exchange shortage, Imports of foreign goods