Determinants of Export Commodity Concentration and Trade Dynamics in Ethiopia

With this study, the direction of trade in Ethiopia was descriptively assessed, along with the construction of the appropriate concentration index. The paper has also attempted to estimate the major determinants of export concentration or export diversification. It seemed that there is a significant shift in direction of trade in Ethiopia mainly from the west to the east. On the export side, this shift is commendable in that it shows diversification from the developed world to the developing countries of Africa and Asia. This shows a growing south-south trade. Although the geographic trends are looking up, specific commodity destinations are concentrated. On the import side, similar to that of the exports, a significant shift has been noted in the past few years. As expected the share of China has increased significantly to reach close to 15 percent of total imports. Much like exports the specific import categories also originate from few countries showing specific commodity concentration. Taking the concentration issue further, concentration indices have been constructed using six different measures of concentration. Concentration is declining with regards to commodity for Ethiopia. Using three of the indices constructed an estimation of the export concentration determinants was made. It was found that lagged value of output, change in real effective exchange rate, change in education spending and lagged value of investment to GDP ratio have been found to be significant determinants of export concentration. Therefore, in order to enhance export diversification encouraging exchange rate and investment policy are required in addition to promoting growth and human capital.