Trade Liberalization And Industrial Growth In Ethiopia A Cointegration Analysis

This paper studies the re lat ion between trade policies and economic growth in Ethiopia. The ' humanrncapital model of endogenous growth' developed by Lucas (1988) which takes labor, capital, andrneducation as secondary school enrollment. The Human capital model is augmented with tradernliberalization variables of export GDP and import duty. In the empirical investigation of the aggregaterngrowth function of industrial value added in Ethiopia, cointegration and error correction modelingrnapproaches have been applied to measure the long run and short run determinants of industrial valuernadded.rnrnThe data of Ethiopia which covers a period of 197 I to 2005 suggest that there is a long runrnrelationship between the industrial value added and its determinant capital, labor, high schoolrnenrollment ratio of ratio of real export to GOP, and import duty collection. The short-termrndynamics is also estimated using an error correction model (ECM). The estimate shows that allrnvariables including real capital formation, the labor force, human capital, industrial import tariff andrnratio of real exports to GOP have emerged as in significant determinants of industrial value addedrnfunction in Ethiopia. The policy implication is government should promote trade liberalization policy.

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