Ethiopian Export Potential and Efficiency: A Stochastic Frontier Analysis Approach
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Date
2023-04-01
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A.A.U.
Abstract
The main objectives of the study are to estimate the current level of efficiency, identify the causes of the inefficiency and analyze the possible impacts of country-specific-constraints on Ethiopia’s export. This study used a stochastic frontier gravity model to estimate export efficiency and potential of Ethiopia's bilateral trade with its top 47 trading partners from 2007 to 2020. The findings reveals importing countries' GDP growth had a significantly positive effect, whilst the importing countries' populations had a significant negative effect on Ethiopia's export. Ethiopia's total arable land area which is used as a proxy to measure resource endowments, distance from other countries, and currency exchange rate are found to be statistically significant effects on export flows. On the contrary, Ethiopia's GDP, population growth and inflow of foreign direct investment appear to be statistically insignificant. Trade with APEC and COMESA member countries has a statistically significant impact in reducing Ethiopia's export inefficiency compared to other countries. Importer countries landlocked dummy variable happens to be statistically significant in reducing the inefficiency effect, whereas the coefficient of average tariff imposed by a partner nation is statistically insignificant. In general, empirical findings demonstrate that Ethiopia's actual export is far below the estimated efficient level, and thus there is a significant room to increase it. This finding suggest redemption of policy measures that enable the country to maximize the efficiency of the sector by tapping its potential, particularly through establishing integration with untapped markets potential in the Middle East and Asian countries.
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Export, Export Efficiency, Export potential, Stochastic Frontier Gravity Model JEL Classification: C23, C87, F14