The Impacts of Devaluation on Export Performance: The Case of Ethiopia

Agriculture plays a vital role in the Ethiopian economy, contributing 42 percent of Gross Domestic harvest-time (GDP), 80 percent of the employment and 90 percent of total exportinging earnings (Ministry of Finance and Economic Development MoFED 2011 Diao et al. 2010). In 2009 with an effort to shift the vicious socio-economic circle, the government of Federal Democratic Republic of Ethiopia (FDRE) developed a Growth and Transformation Plan (GTP) with a priority to export oriented agricultural development led industrialization (MoFED 2010 P. 22). Despite the over-ambitious plan, however, the performance of the export sector has remained undeveloped which calls for sound macroeconomic policies that are crucial to encounter the bottlenecks constraining the sector. This essay examines the consequences of devaluation on the performance of Ethiopias export sector. Foreign supersede rate is a key macroeconomic variable that determines performance of export in a country. The reasons why export performance depends on the conflicting exchange regime in developing countries include the characteristics of exportable goods, the effectivity of financial sectors and trading with foreign currencies rather than with the domestic currency (Nilsson and Nilsson 2000). Accordingly, Ethiopias export is characterized by primary agricultural productions with inelastic export demand and supply, engrossment of market and products, and little value addition. The result of primary agricultural product export is a smaller marketing margin and insignificant negotiate power on the world market. The financial sector is also bound with higher probabilities of the existence of parallel markets that fail at allocating resources to their most streamlined usage. More... ...tional Economics Theory and Policy. 9th ed. Edinburgh Gate Pearson Education. Melesse, Wondemhunegn Ezezew. 2011. The Dynamics between Real sub tread Movements and Trends in Trade Performance The Case of Ethi opia. Munich Personal query Papers in Economics Archive (MPRA). MPRA Paper No. 29161. Munich. Michael, Nwidobie Barine. 2011. An impress Analysis of Foreign Exchange Rate Volatility on Nigerias Export Performance. European Journal of Economics, Finance and Administrative Sciences V (37) 47-55. internal Bank of Ethiopia (NBE). 2011. National Bank Annual Report 2009/10. Addis Abeba NBE. Nilsson, Kristian and Lars Nilsson. 2000. Exchange Rate Regimes and Export Performance in Developing Countries. Oxford Blackwell Publishers 331-349. arena Bank (WB). 2012. World Development Indicators Database Ethiopia. Washington, DC WB.