AN ASSESSMENT OF THE RELATIONSHIP BETWEEN EXPORT DIVERSIFICATION AND ECONOMIC GROWTH IN ETHIOPIA

Abstract

The effect of export diversification on economic growth has been a debatable issue in the empirical literature. This paper, therefore, examined the contribution of export diversification on economic growth in Ethiopia using time series data from 1970/71—2013/14 based on purposive samples. National Bank of Ethiopia (NBE), Ministry of Finance and Economic Development (MOFED), Ministry of Education (MoE) Ethiopia, National Metrology Agency of Ethiopia (NMAE), Central Statistics Authority (CSA) of Ethiopia and United Nations Conference on Trade and Development (UNCTAD) were the data sources. The research used both descriptive and causal type data analyses techniques. In the descriptive parts the trend analysis of export diversification and real GDP were separately and jointly analyzed. Looking at the result from descriptive analysis in Ethiopia, the country has recently shown numerical increments. Whereas, in the econometric analysis multiple regression and basic growth model were used. The estimation results obtained from the multiple regression test has revealed that export diversification positively affect Real GDP growth in Ethiopia. The major variables identified in the study were export diversification, rainfall, investment, financial development, trade openness of the country, human capital, and labor force growth. Necessary estimations were done to the effect of each variable on economic growth of Ethiopia. Therefore, export diversification, rainfall and investment were found to be significant. It has been found out that the country made an effort to improve export diversification, but it is still below the mid-level of diversification (50%). Likewise, positive link was found to exist between export diversification and economic growth in Ethiopia in which 0.14% effect on the economic growth come from export diversification at its enfant stage. Besides, the country should look forward to identifying new potential regional and international export markets, need to strengthen the existing few industries to diversify the exportable product and pave the way for the establishment of new industries. What is more, emphasis should be given (by the stockholders) to focus on value addition on exportable items.