Trade Liberalization and Industrial Growth in Ethiopia: A Cointegration Analysis
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Date
2008-06
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A.A.U
Abstract
This paper studies the re lat ion between trade policies and economic growth in Ethiopia. The ' human
capital model of endogenous growth' developed by Lucas (1988) which takes labor, capital, and
education as secondary school enrollment. The Human capital model is augmented with trade
liberalization variables of export GDP and import duty. In the empirical investigation of the aggregate
growth function of industrial value added in Ethiopia, cointegration and error correction modeling
approaches have been applied to measure the long run and short run determinants of industrial value
added.
The data of Ethiopia which covers a period of 197 I to 2005 suggest that there is a long run
relationship between the industrial value added and its determinant capital, labor, high school
enrollment ratio of ratio of real export to GOP, and import duty collection. The short-term
dynamics is also estimated using an error correction model (ECM). The estimate shows that all
variables including real capital formation, the labor force, human capital, industrial import tariff and
ratio of real exports to GOP have emerged as in significant determinants of industrial value added
function in Ethiopia. The policy implication is government should promote trade liberalization policy.
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Keywords
Growth in Ethiopia, Liberalization and Industrial