Devaluation and Export Performance Essay -- Economics

Agriculture plays a vital role in the Ethiopian economy, contributing 42 percent of Gross Domestic Product (GDP), 80 percent of the employment and 90 percent of total export earnings (Ministry of Finance and Economic increment MoFED 2011 Diao et al. 2010). In 2009 with an effort to remove the vicious socio-economic circle, the government of Federal Democratic Republic of Ethiopia (FDRE) developed a Growth and Transformation Plan (GTP) with a antecedency to export orientated agricultural development to lead 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 critical to combat the bottlenecks constraining the export sector. Foreign exchange rate is a key macroeconomic variable that determines performance of export in a country. The causes why export performance depends on the foreign exchange regime in developing countries include the chara cteristics of exportable goods, the effectiveness of financial sectors and trading with foreign currencies sort of than with the domestic currency (Nilsson K. and Lars N. 2000). Accordingly, Ethiopias export is characterized by capital agricultural products with inelastic export demand and supply, concentration of market and products, little value addition. The result of primary agricultural product export is a smaller marketing margin and insignificant bargaining power on the world market. The financial sector is likewise constrained with higher probabilities of the existence of parallel markets that fail at allocating resources to their most efficient usage. Moreover, all trade transactions are carried out with foreign currencies, preponderantly with US... ... 2011. The Dynamics between Real Exchange regularize Movements and Trends in TradePerformance The Case of Ethiopia. Munich Personal RePEc (Research Papers in Economics). Munich. Michael, Nwidobie Barine. 2011. An Impac t Analysis of Foreign Exchange Rate Volatility on Nigerias Export Performance. European Journal of Economics, Finance and Administrative Sciences Issue 37 (September) 47-55.National Bank of Ethiopia (NBE). 2011. National Bank yearbook Report 2009/10. Addis Abeba NBE. http//www.nbe.gov.et/publications/annualreport.htm (Accessed on Apri 25, 2012).Nilsson, Kristian and Lars Nilsson. 2000. Exchange Rate Regimes and Export Performance in Developing Countries. Oxford Blackwell Publishres 331-349.The World Bank (WB). 2012. World Development Indicators Ethiopia. WB. http//data.worldbank.org/country/ethiopia (Accessed on April 26, 2012).