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Ethiopia's foreign trade potential: inferences from a dynamic gravity approach

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  • Gebreyesus Gebrehiwot
  • Bahre Gebru

Abstract

Ethiopia has poor performance in the global trading system. To draw implications for improvement, this article intends to estimate the country's trade potential with major trading partners. A dynamic gravity approach based on a panel dataset was estimated by system generalised method of moments estimators to first analyse the pattern of trade flows. The coefficients obtained are then used to predict the basic trade and export trade potentials of Ethiopia. The findings revealed that the dynamic gravity model fits the data well indicating the presence of hysteresis in trade. We also found that the traditional gravity variables are all significant. However, Ethiopia's trade potential has yet remained unrealised. The highest magnitude of trade potential was found with Asian, European and African countries. Hence, Ethiopia's unused trade potential can be exploited through export diversification, improvement of infrastructure and bilateral trade negotiations.

Suggested Citation

  • Gebreyesus Gebrehiwot & Bahre Gebru, 2015. "Ethiopia's foreign trade potential: inferences from a dynamic gravity approach," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 9(4), pages 355-375.
    • Handle: RePEc:ids:ijecbr:v:9:y:2015:i:4:p:355-375
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    Cited by:

    1. Fassil Eshetu & Abule Mehare, 2020. "Determinants of Ethiopian Agricultural Exports: A Dynamic Panel Data Analysis," Review of Market Integration, India Development Foundation, vol. 12(1-2), pages 70-94, August.
    2. Fassil Eshetu & Degye Goshu, 2019. "Determinants of Ethiopian Coffee Exports to its Major Trade Partners: A Dynamic Gravity Model Approach," Journal of Asian Business Strategy, Asian Economic and Social Society, vol. 9(2), pages 110-119, December.

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