THE CONTRIBUTION OF EXPORT EARNINGS TO ECONOMIC GROWTH OF ETHIOPIA: A TREND ANALYSIS

Abstract

Empirically examining the contribution of different macroeconomic variables to economic growth would help the country to formulate conducive policies to foster economic growth to this regard, this study investigated the contribution of export earnings on economic growth of Ethiopia for the period 1960/61-2011/12 by empirically testing the longrun and shortrun relationship and causality between exports and economic growth via including another macroeconomic variable i.e import using popular time series econometric techniques of cointegration ,vector error correction estimation and Granger causality test and to review the policies commenced by the different regimes in relation to export. The results from unit root test shows that all variables are order one integrated; and Johansen cointegration shows the existence of longrun relations among the variables. Furthermore, the Granger causality test conducted indicate that in the shortrun there is no causality among variables but in the long run there is bidirectional causality among the three variables including: GDP, Export and Import. The key finding in this study is that export growth positively and significantly affected economic growth and growth also stimulate export in the long run. This provided support for the adoption of both Export -Led Growth and Growth-Led Export growth strategies in case of Ethiopia. Thus effort should be directed towards policies that will expand the volume of a country’s exports and at the same time promote the emergence and expansion of domestic industries.