Determinants of Ethiopian Trade Balance: Vector Error Correction Model (VECM) Approach

Trade balance is one core component of national income of countries especially in the present times on which every nation have open economy and foreign interaction. It may be in positive or negative depending on the trading and economic power of the nation. For instance Ethiopia has a negative trade balance for the previous two decades, implies that export of the country could not cover the import expenditure. This indicates that the proportion between export and import is always less than one. There are different factors which result into having as such circumstance. This study tried to assess the main determinants of the trade balance of Ethiopia by considering ratio of export and import as an approximation to trade balance. The study implements error correction model to analyze a time series data from 1981-2011, collected from World Bank. The long-run co-integration result shows that GNI per capita, domestic inflation and trade dependency of the country have negative and significant integration with the ratio of export to import. Given this, world oil price inflation has positive and significant effect on the ratio. The vector error correction model of the short-run regression shows that the previous year ratio (Export/Import), elasticity to import, previous year world oil price, agricultural growth and previous year GNI per capita have positive and significant effect on the speed of adjustment of the long-run trend of the ratio. Given this, elasticity of export, previous year inflation and current year GNI per capita affects the speed of adjustment negatively and significantly. The ECM result shows that the speed of adjustment of the deviation from the long-run trend line is 91%, which indicates that Ethiopian economic system is responsive for each policy measures.

Ethiopian Coffee Trade Pattern: an Augmented Gravity Modeling Approach

This study assessed the coffee trade pattern of Ethiopia for a period of 16 years from 1997-2011 for 36 importing countries, which implies that the data were panel. The data became panel type by having a one year gap and result to have 8 years. In the study, policies undertaken by the different regimes in relation to export policies were assessed. There was consideration of the importing capacity of the countries and successiveness of their importing condition for considering the countries as a sample. We used gravity model to identify the degree to which how the power of importer and exporter nations affect the coffee trade of Ethiopia. We explored different tests in order to select the appropriate model to regress the gravity model. As of those tests, the research had adopted the random effect regression system to regress the gravity model. The model result revealed that the model is strong enough to explain the variation in the dependent variable. The result also exhibited that the demand side variables of the coffee export of Ethiopia are significant in affecting the export value. Given this, the foreign GDP of the trade partners affect the export value of Ethiopian coffee in the positive direction and in a significant manner. This implies that each increment in GDP of the coffee trade partners of Ethiopia result into creation of additional demand for Ethiopian coffee. However, the domestic factors are not significant in affecting the supply level of the coffee export of the country. Keywords:- Coffee export, Gravity model, Panel data, Demand and Supply side factor

Effect of Climate Variability on Crop Income in Central Ethiopia

Ethiopian agriculture is a vulnerable sector from effects of climate variability. This study identified how strong is the effect of climate variability on smallholders’ crop income in Central highlands and Arssi grain plough farming systems of the country. The unbalanced panel data (1994-2014) of the study collected for eight rounds analysed through fixed effect regression. The model result shows that successive increment of crop season rainfall keeping the temperature constant has negative and significant effect on households’ crop income in the study area. The crop income responds similarly for temperature increment if the rainfall remains constant. Given this, simultaneous increment of the two climate related inputs has positive and significant effect on crop income. Other variables like flood, frost, storm, and rainfall inconsistency in the onset and cessation time affected households’ crop income negatively and significantly. Similarly, draught power and human labour, which are critical inputs in the crop production of Ethiopian smallholders, have positive and significant effect on crop income as to the model result. Thus, this study recommended that there should be supplementing the rainfall through irrigation, check dam and other activities to have consistent water supply for the crop production that enable smallholders to collect better income. Additionally, negative effect of temperature increment should be curved through adopting long lasting strategies like afforestation