Determinants of export performance in Ethiopia: a VAR model analysis

Abstract

Despite encouraging improvements in recent decades, Ethiopia's export performance has typically been portrayed as poor compared with other sub -Saharan African countries. The major objective of this paper is to investigate factors that determine the export performance of the country by using an econometric model for the period 1970/71- 2010/11. This study tried to review the export performance; trends and share of different export items and examine the long run and short run determinants of export performance of Ethiopia. The long run and short run estimates are investigated using Johansson cointegration and Vector Error Correction approaches. The data is collected from NBE (2011), EEA statistical data base CD-ROM (2010), and WB and WDI (2011). The findings of the study revealed that in the long run export performance has found to be positively influenced by real effective exchange rate, openness, RGDP of home country, infrastructural development and private credit as a ratio of GDP (financial development). The RGDP of trading partner has found to be statistically insignificant. Hence, the long run elasticities of export performance with respect to real effective exchange rate, openness, RGDP of home country, infrastructural development and private credit as a ratio ofGDP (financial development) are 0.7, 0.54, 1.7, 0.3 and 0.44 respectively. In the short run only last year openness has directly involved in enhancing export performance of current year. Maintaining high and sustainable economic growth, improvements in infrastructural facilities and credit access, and maintaining conducive and stable exchange rate policies as well as working to reduce trade restriction mechanism should due emphasis so as to improve Ethiopia's export performance. Key words: Ethiopia, Export Performance, Financial development, infrastructural development, Johansson co-integration, Openness, Real effective exchange rate, RGDP of home country, RGDP of trading partner, Vector Error Correction.