Effects Of International Trade On Economic Growth Of Ethiopia:Ardl Approach

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.