Abstract:
The aim of this study is to examine the effect of international trade on economic growth of
Ethiopia from 1991 to 2022. The data was analyzed using descriptive statistics and regression
analysis with the use of STATA version 13. The results of the descriptive statistics revealed that
the fluctuation of import trade of goods and services in Ethiopia and export growth slightly
increased from 1992-3 to 2021-22, resulting in a negative balance of trade in Ethiopia. The
ARDL model was employed to estimate the model, and the study utilized the Augmented Dickey
Fuller and Phillips Perron (PP) unit root tests to check for data stationarity. The variables of
real gross domestic products lags, import trade, export expenditures of governments, and real
exchange rate showed no unit root at the level. The ARDL bound test indicated the presence of
both long-run and short-run relationships among the variables. Granger causality analysis
revealed causality between all the variables and GDP. The variables including import, RGDP
Lags (1), exchange rate, and inflation exhibit a short-term relationship with the logarithms of
real gross domestic products and have immediate effects on economic growth in Ethiopia. On
the other hand, export, Open Trade, government expenditures, and investments do not
demonstrate this relationship. The study conducted short-term estimations and found that
variables such as export, inflation in gross domestic products, and investments did not
significantly impact economic growth. However, variables such as real gross domestic product
lags, real exchange rate, import, trade oneness, and government expenditures had a significant
impact on economic growth at the 1% and 5% levels of significance, respectively, in Ethiopia.
Based on these findings, the study recommends that the government should focus on enhancing
export promotion activities by developing sectors with high export potential in order to achieve
economic growth.
