Trade Liberalization and Economics Growth in Ethiopian :A Bound Test Approach
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Date
2008-06
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A.A.U
Abstract
The purpose of the study is to analyze the relationship between Ethiopia's
economic growth (RGDP) and trade liberalization (OPEN), using the time
series data during 1971/72-2003/04. In the estimation of the long run and the
short run relationships among the variable s, the newly developed ARDL-ECM
bound test procedure (pasaran, 2001) is employed. This approach is capable of
testing for the existence of a long run relationship regardless of whether the
underlying time series are individually 1(0) or 1(1) or whether the underlying
time series are mutually 1(1) or 1(0). This enhanced the stability and robustness
of our results. Accordingly, the results indicate that there exist a long run
relationship between real GDP per capita and openness (trade/GDP).
The long run estimated coefficient suggests that the impact of trade liberalization on
economic growth has positive and significant but others variables real exchange
rates (RER) and lab our force (LF) are in significant impact on real GDP per
capita. The short run error correction model also confirm that the existence of
the co-integration relationship between economic growth and trade openness.
Further, the feedback coefficient indicate that a very high rate of adjustment
towards long run equilibrium. The CUSUM and CUSUMQ stability test also
indicate that the estimated long run Coefficient remain stable over the period
of the study. Since trade liberalization is the long run process, from the study
we suggest that in order to enhance growth the country should continue to
liberalize their trade.
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Keywords
economics growth, Ethiopian test approach