Prospect and Retrospect of Exchange Rate Shocks on Manufacturing and Exports of Ethiopia: CGE Model Analysis
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Date
2011-06
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Addis Ababa University
Abstract
In this study, the positive and negative consequences of deliberate shocks to Ethiopian Birr have
been examined. The focus areas of the analysis includes: domestic production, real consumption,
welfare, export, import, trade balance, and current account. It also addresses impacts on
employment, investment, government revenue and economic growth.
A static CGE model is employed so as to observe the multi sectors and multi activities effects of
the shocks. The outcomes of the simulations are checked for their robustness through sensitivity
test. They have been also interpreted counterfactually for the short run to medium term effects.
The findings of the analysis reveal that the productions of agricultural and service sectors expand
where as that of the industrial sector shrinks. Particularly, exportable agricultural products and
non tradable service sector derive more returns. Even if the light and some heavy manufacturing
are benefited, the significant and adverse effect on construction sub sectors largely outweighs.
Besides, exports grow faster than imports. On the other hand, trade balance continuous to
increase negatively whereas current account partly improves and partly deteriorates under
different shock levels.
By and large, real consumption, welfare, GDP, investment and government revenue are all
adversely affected. And, thus, the economy of the country would have been restrained in the short
run had the exchange rate been shocked in line with the scenarios.
Key words: Exchange rate shocks, exports, manufacturing, Ethiopia, and CGE model
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Keywords
Exchange rate shocks, exports, manufacturing, Ethiopia, and CGE model