DETERMINANTS OF EXPORT PERFORMANCE OF ETHIOPIA: APPLICATION OF PANEL GRAVITY MODEL

Abstract

Exports play an important role in an economy, influencing the level of economic growth, employment and balance of trade. Hence, expanding export capacity and international competitiveness are essential for rapid economic growth and development. This study is to analyze the main determinants of supply and demand-side factors affecting export performance of Ethiopia. The study employed a panel data analysis to empirically analyze determinants of export performance of Ethiopia’s for the period of 2008 to 2020. A sample of 15 major trading partners was selected to analyze the determinants of total export. The panel unit root test of Levin-Lin-Chu was used for each variable and applied the first difference transformation for the variables that had a unit root. Based on the Hausman test the random effect General Least Square gravity model was selected as an analytical tool to estimate the determinant of export performance of Ethiopia’s. The results indicated that Gross Domestic product of trade partner, Per capita Income of Trading Partner, Real Exchange Rate (RER), trade openness, weighted distance and the variables institutional quality (CPI), had significantly affected on export performance of Ethiopia’s. Based on the finding results, the study recommends that there is a need to formulate policies and strategies that would promote institutional quality, improve supply capacity, and strengthen trade liberalization, deepening economic integration and targeting export destination that could reduce transportation costs in order to improve the export performance of Ethiopia.