Abstract:
Export diversification on economic growth has been a debatable issue in the empirical literature for a long time. The main objective of the study is to investigate determinants of export diversification and its effect on economic growth of Ethiopia using time series data of 1992-2023. Secondary data for the study were collected from National Bank of Ethiopia (NBE), Ministry of Finance and Economic Development (MOFED) and Ethiopian Central Statistics Agency. Both descriptive and econometric types of data analyses techniques were employed. The Autoregressive Distributed Lag (ARDL) Approach to Co-integration and Error Correction Model, respectively, are applied in order to investigate the long-run and short run relationship between the dependent variable and determinants of export diversification. The finding of the Bounds test shows that there is a stable long run relationship between export diversification, real GDP, trade openness and exchange rate. The estimation results obtained from the multiple regression test has revealed that export diversification positively affect Real GDP growth in Ethiopia. In general, the coefficient of short-term dynamics reveals that real GDP growth is statistically significant and showing its contribution for the export diversification in the short run. In addition, trade openness has shown statistically significant relationship with the export diversification as their relation become negative in the short run. Furthermore, active population growth is positively and statistically significant and it has contribution to the export diversification of the country during the study periods. Hence policy makers and /or the Ethiopian government should strive to increase export diversification which is believed as a back bone of growth and has allocate adequate finance for export intensive which will help to stabilizing the inflation and exchange rate. Hence, emphasis should also be given (by the stockholders) to value addition on exportable items. Export diversification positively impacts Ethiopia’s long-run economic growth by stabilizing foreign exchange earnings and reducing reliance on primary commodities. Trade openness requires supportive policies to enhance competitiveness and sustain diversification. Exchange rate stability fosters a predictable trade environment, encouraging long-term export investment. Population growth boosts labor supply, supporting industrial expansion and export diversification. Indeed, Policymakers should focus on financial support, infrastructure, and value-added production to ensure sustainable economic growth.
