Economy-Wide Impacts of Export Price Changes in Ethiopia: A Recursive Dynamic Commutable General Equilibrium Analysis
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Date
2018-10
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Addis Ababa University
Abstract
Ethiopia’s export is largely dominated by primary commodities characterized by a high degree of price variability. Therefore, this study investigated the economy-wide impacts of export price changes using Recursive Dynamic Computable General Equilibrium model calibrated through 2009/10 Social Accounting Matrix of Ethiopia, developed by International Food and Poverty Research Institute in collaboration with Ethiopia Development Research Institute and University of Sussex. The study reveals increase in export price appreciates domestic currency, rises import demand, but reduces export demand together that worsens Ethiopia trade balance. The increase in export price also weakens investment demand, government income and saving, the overall and sectoral economic growth. It also rises factors return and household income and welfare. Conversely, decrease in export price depreciates domestic currency, which lead to low import, but, high export demand, which in turn leads to improved trade balance. It also increases investment demand, government income and saving, and the overall economic growth. However, decrease in export price results low factors return, household income and welfare. To reduce the negative impacts of export price changes in the overall economy, it is recommended that: a) the exchange rate policy of the country should managed-floating type, b) diversification and industrialization of export sector through integrating commodity policies into the country overall development strategy, and c) harness the income gains from commodity prices to facilitate wider-economic transformations and reduction of dependence on primary commodities export.
Description
A Thesis Submitted to
The Department of Economics
Presented in Partial Fulfillment of the Requirements for the Degree of Master of Science in Economics (Economic Policy Analysis)
Keywords
Ethiopia, Exchange rate, Export price Changes