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Ethiopia’s export promotion and the misalignment of the tariff and exchange rate regimes

Author

Listed:
  • Mulu Gebreyesus

    (Ethiopian Development Research Institute)

  • Alekaw Kebede

    (Ethiopian Development Research Institute)

Abstract

By examining how much aligned the tariff and exchange rate regimes are with the export promotion in Ethiopia, this study tries to shed some light on why the export performance of the country and particularly that of manufacturing sector remained poor despite continued government promotion and support. Toward this it quantifies the extent of effective protection and defacto anti-export bias generated by the existing tariff and foreign exchange rate regimes. The disaggregated (approximately 2-digit) industry level estimates of the NRP, ERP and anti-export bias in the manufacturing sector show wide difference among industries. With about 35% nominal duty rate, the export oriented sectors such as Textiles, Apparels, Leathers, Footwear industries are the most protected ones within the manufacturing sector. The anti-export bias estimates suggest that the value added obtainable in the domestic market vis a vis exporting is greater than 1.5 times for the Leather and Footwear industries and more than 70% for the Textile & Apparel industries. The anti-export bias in these sectors remained large, even after considering a 100% of duty drawback on imported inputs, making the domestic market lucrative relative to the export market. This study further shows that exporters are penalized by the increasing overvalued exchange rate of the Birr. Finally, it highlights the inconsistency of the tariff and exchange rate policies with the export promotion of the country and provides some recommendations to address these anomalies.

Suggested Citation

  • Mulu Gebreyesus & Alekaw Kebede, 2017. "Ethiopia’s export promotion and the misalignment of the tariff and exchange rate regimes," Working Papers 019, Policy Studies Institute.
    • Handle: RePEc:etd:wpaper:019
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    References listed on IDEAS

    as
    1. Tokarick, Stephen, 2007. "How large is the bias against exports from import tariffs?," World Trade Review, Cambridge University Press, vol. 6(2), pages 193-212, July.
    2. Charles Ackah, 2005. "Working Paper 78 - Trade Policy and Performance in Sub - Saharan Africa since the 1980s," Working Paper Series 213, African Development Bank.
    3. Arne Bigsten & Mulu Gebreeyesus & Måns Söderbom, 2016. "Tariffs and Firm Performance in Ethiopia," Journal of Development Studies, Taylor & Francis Journals, vol. 52(7), pages 986-1001, July.
    4. William Tyler, 1983. "The anti-export bias in commercial policies and export performance : Some evidence from the recent Brazilian experience," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 119(1), pages 97-108, March.
    5. W. M. Corden, 1966. "The Structure of a Tariff System and the Effective Protective Rate," Journal of Political Economy, University of Chicago Press, vol. 74(3), pages 221-221.
    6. Mulu Gebreyesus & Ashagrie Demile, 2017. "Why export promotion efforts failed to deliver? Assessment of the export incentives and their implementation in Ethiopia," Working Papers 017, Policy Studies Institute.
    7. Prema‐chandra Athukorala, 2006. "Trade Policy Reforms and the Structure of Protection in Vietnam," The World Economy, Wiley Blackwell, vol. 29(2), pages 161-187, February.
    8. Howard J. Shatz & David G. Tarr, 2017. "Exchange Rate Overvaluation and Trade Protection: Lessons from Experience," World Scientific Book Chapters, in: Trade Policies for Development and Transition, chapter 5, pages 115-127, World Scientific Publishing Co. Pte. Ltd..
    9. Westphal, Larry E, 1990. "Industrial Policy in an Export-Propelled Economy: Lessons from South Korea's Experience," Journal of Economic Perspectives, American Economic Association, vol. 4(3), pages 41-59, Summer.
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    Cited by:

    1. Moges Tufa & Mans Söderbom & Zerayehu Sime, 2023. "The Impact of Sector-Specific Industrial Policy on Manufacturing Firm Performance: Quasi-experimental Evidence from Ethiopian Chemical Industries," Journal of Industry, Competition and Trade, Springer, vol. 23(3), pages 363-397, December.

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    Keywords

    Export promotion; protection; anti-export bias; macroeconomic policy; Ethiopia;
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