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The Relationship between External Trade and Economic growth in Ethiopia- an empirical analysis


This study is motivated by the controversies that still exist between the causal relationship and the directional effects between foreign trade and economic growth as postulated by economic theories and literatures. It aims to empirically look into the causal relationship between Ethiopia’s external total trade (total external merchandise trade) and its economic growth (real GDP) using long-run time series data (1971-2011) and econometric methods of analysis with the Vector Autoregressive (VAR) models and Granger causality Wald tests. Results show that the direction from total trade to economic growth is insignificant, which means, total international trade does not Granger cause economic growth in Ethiopia.  On the other hand, the causal direction from GDP of Ethiopia to total international trade is highly significant. The implication of this is that international trade did not significantly help Ethiopia’s economy to grow for the period considered and hence the trade-led growth hypothesis cannot be inferred for Ethiopia. This is intuitive, because the economy is largely driven by the agriculture and service sectors which do not seem to benefit from technology transfer and access to markets that international trade creates. This study suggests a number of recommendations to further enhance the benefits of external trade in the economy

Corporate Author: 
Ethiopian Economics Association (EEA)
Ethiopian Economics Association (EEA)
Primary Descriptors: 

External Merchandise Trade

Secondary Descriptor: 

 VAR,  Granger Causality test.

Geographic Descriptors: 
Cataloge Date: 
Broad Subject heading: 
Economic Growth
Call Number: 
330.0963 PRO 2017
Serial Key Title: 
Proceedings of the Fourteenth International Conference on the Ethiopian Economy
Publication catagory: 
Content type: 
Publication date: 
2017-06-19 00:00:00
Conference Place: 
Addis Ababa, EEA Multi-purpose Building Conference Hall
Place of publication: 
Addis Ababa, Ethiopia
Type of material: 
Current frequency: 
Thematic area: 
Macroeconomics, Trade and Industry Related Topics
Conference date: 
July 21 – 23, 2016