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 in this regard. This study had investigated the contribution of export earnings to economic growth of Ethiopia for the period 1960/61-2011/12 by empirically testing the long run and short run relationship and causality between export and economic growth via another macroeconomic variables, i.e., import using popular time series econometric techniques of co-integration ,vector error correction estimation and Granger causality test and the review of the policies commenced by the different regimes in relation to export. The results from unit root test show that all variables are order one integrated; and Johansen cointegration shows the existence of long run relations among the variables. Furthermore, the Granger causality test conducted indicates that in the short run 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.