Linking Trade Liberalization with Total Factor Productivity: The Case of Ethiopia.
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Date
2007-05
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A.A.U
Abstract
Supporters of openness, argues that trade liberalization increases
productivity through increasing the access to advanced technologies in
the form of knowledge and capital. whereas opponents of free trade,
argues that it reduces the total factor productivity of a country through
exposing domestic economy to stiff competition of foreign industries.
to this effect this paper is intended to show the possible outcome of the
foreign trade reform measures of the current Ethiopian govemment to
the country's total jactor productivity level using a time series data
covering from 1971/72 to 2004/05.The cobb-douglas production
function, which explains output as a junction of labor, capital and
productivity is adopted. Moreover, war and weather are incorporated as
dummy variables in the estimable model of the paper.
the analysis makes use of Johansen maximum likelihood estimation
procedure. In this co integration analysis, two variables (Le. student
index and exchange rate gap) with the exception of capital stock per
labor are found to be statistically significant each with a positive sign in
explaining the total jactor productivity of the country. Whereas, capital
shows insignificant and negative effect on the dependent variable. The
result of the paper support the current trade liberalization measures of
the govemment because the reform measures have positively implying
the total factor productivity of the country.
through applying the vector error correction model (VECM), it has been
found that capital per labor, human capital and weather are significant
in explaining productivity per labor in the short run where as openness
and war are insignificant in explaining the dependent variable.
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Keywords
Liberalization, Total