The Effect of Depreciation of Birr on Major Export Products of Ethiopia: The Case of Hides and Skins
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Date
2011-06
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Addis Ababa University
Abstract
The paper analyses the effects of trade and exchange rate policies on one of Ethiopia’s
agricultural export item, hides and skins. The problem which motivated this study is the
theoretical debates and empirical contradictions given on the matter of effect of
devaluation/depreciation of domestic currency on the performance of export of the country.
Ethiopia, as one of the most endowed in enormous capacity in livestock population, it is a
potential advantage to the country to be a country with higher competitive advantage in the sub
sector of export of hides and skins. But the reality is the exact opposite. The country at the head
in livestock population is at the tail of world exporters of hides and skins. one of the policy
measures taken by the government in the last couple of decades in order to improve the level of
export of the country in general is devaluation (and continuous depreciation) of birr. The step
towards market based determination of exchange rate is intended to give an enhanced
performance of exports especially in sectors which the country has great potentials. Therefore,
the study asks and answers what happened in the export of hides and skins when the exchange
rate depreciates continuously for the last 17 years. The empirical findings of the study reveal
that real exchange rate is one factor, among many others, that affects the volume of export of
hides and skins. Hence, it is recommended that policy towards liberalized exchange rate
determination should be complement by other policy measures which are in harmony with the
economic agenda of export enhancement.
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Keywords
Economic Policy Analysis, Economics