Impact of agricultural exports on economic growth in Ethiopia: The case of coffee, oil seed and pulses

Abstract

More than 80 percent of the population in Ethiopia lives in rural areas and their main source of income is agriculture. Agriculture accounts for 45 percent of the Gross Domestic Product (GDP) and employs 85 percent of the labour force.Export of agricultural products constitutes 86 percent of the total foreign exchange earnings. The country has taken different measures to diversify and increase the contribution of the export sector to economic growth such as; export trade duty incentive scheme, export credit guarantee scheme and foreign exchange retention scheme to those wholly engaged in supplying their products to foreign markets. Despite the incentives taken by the country, the export sector has depended on a few agricultural products mainly coffee, oil seeds and pulses which are characterized by fluctuations in quantity, price and have low competitiveness on the world market. The objective of the study was to assess the trend and impact of agricultural (coffee, oilseed and pulses) exports on economic growth of Ethiopia over the last forty years by looking at: the existence of long run relationship between agricultural export and economic growth; the speed of adjustment in the long run and the existence of causality between the agricultural export and economic growth. The analysis was done using co-integration model, Error correction model and Granger causality model.The findings of the study showed that Coffee export and oilseeds export have a positive and significant relationship with economic growth. While, pulses export was found to have negative and insignificant effect on economic growth in short run and positive but insignificant in the long run. On the other hand the causality relationship found that there is bi-directional relationship between coffee export, oilseed export and economic growth whereas unidirectional relationship was found between pulses export and economic growth. Based on the findings, it is recommended that policies aimed at increasing the productivity and quality of these cash crops should be implemented. Also additional value should be added to them before exporting. Correspondingly, there is also a need to devote resources on the production of non-export goods in order to increase exports since they have bi-directional relationship. When this is done, it will lead to a higher rate of economic growth in Ethiopia.