The Impact of Trade Liberalization on the Ethiopia's Trade Balance

Abstract

This study examines the impact of trade liberalization on the Ethiopia's trade balance using the data over the period 1974 to 2009 from NBE (National Bank of Ethiopia). The country has undertaken serious trade reforms, either as a part of major macroeconomic reforms and commitments with international regulations, or by decisions driven by a process of internal adjustment for the last two decades. One of the anticipated gains from the trade liberalization policies adopted by Ethiopia is improved export performance. In this research, the arguments on which this expectation is based were reviewed and the impact of trade liberalization on Ethiopian trade balance was analyzed. However, when it was examined with the application of export equation of Santos-Paulino and Thilwall [2004], it showed that trade liberalization led to the deterioration of the trade balance or too fast of an increase in imports. Thus, it was deduced the evidence that the trade liberalization worsens trade balance due to more imports than exports [Santos-Pauulino and Thirlwall, 2004].

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