Determinants of Ethiopian Agricultural Exports: A Dynamic Panel Data Analysis

Abstract

Although the share of developing countries in international trade has been growing over the last two decades, the share of Africa and Ethiopia in international trade has remained below 3 and 0.3 per cent, respectively. More importantly, despite the colossal effort that has been made by the Ethiopian government to remedy the problem of the export sector over the last two decades, the country has faced a twin deficit: trade deficit and fiscal deficit. As a result, the trade balance of Ethiopia has been worsening through time due to the widening gap between export and import values. Therefore, this study examined the determinants of Ethiopian agricultural exports using the imperfect substitutes’ model as a theoretical framework and system generalised moment method as an analytical model for the period 1998–2018. The regression result of the two-step system generalised moment method showed that gross domestic product, exchange rate, road network, corruption index of Ethiopia, lagged export value, indirect tax revenue and domestic saving are the major determinants of agricultural exports in Ethiopia. However, foreign direct investment and labour force are negatively and significantly related to Ethiopian agricultural exports. Hence, rapid economic growth, currency devaluation, encouraging domestic saving, reducing the tariff on export and better control of corruption would boost Ethiopian agricultural exports. Besides, controlling rapid population growth and directing foreign direct investment to the agricultural sector will also surge Ethiopian agricultural exports.