The Impact Of Aid For Trade In Ethiopia (dynamic General Equilibrium Model)

This study analyses the impact of aid for trade using Dynamic Computable GeneralrnEquilibrium (DCGE) model. It utilized the updated 2005/06 Ethiopian SAM. In order torninvestigate the effects of foreign aid having aid for trade benefits, seven simulations werernmade with percentages employed based on empirical evidence. First, an increase inrnforeign aid is introduced to show the impacts of foreign aid only. Consecutively, aid forrntrade benefits are included with an increase in aid. The model shows an appreciation ofrnexchange rate and decline in exports due to an increase in aid inflows. However, whenrnaid for trade is included, export increases by far compared with the aid only result.rnAmong the aid for trade interventions, aid for building productive capacity more thanrnoffsets the appreciation of exchange rate and decline in export that follow the inflows ofrnforeign aid. Furthermore, the other aid for trade benefits also at least partially offset therndecline in export and appreciation of exchange rate. The results are not sensitive to thernchange in the simulated percentages. The study in general implies foreign aid that hasrntrade benefit component improves export in Ethiopia.rnKey word: Dynamic CGE, SAM and Aid for Trade

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