The Nexus between Export Incentive and Export Performance in Ethiopia

The purpose of this study is to examine the nexus between export incentive and Ethiopian export performance from the year 1983 to 2017. The study is conducted by quantitative research method by using time series econometrics analysis. The study employs an Autoregressive Distributed Lag (ARDL) bound test model to co-integration to investigate the long-run relationship and Error Correction Model (ECM) for the short-run relationship between export and export incentive, real GDP, real exchange rate, gross capital formation, external debt stock, and inflation rate. The long-run empirical result using the bound test reveals that there is a stable long-run relationship between real export and explanatory variables. The study finds out that during the study period the Ethiopian export composition mainly focused on primary product and Europe was the main export destination. In the econometric analysis, the study finds that export incentive has a significant positive impact on export performance both in short-run and long run. Similarly, real GDP and inflation have a significant impact on export performance whereas gross capital formation, real exchange rate and external debt have a significant impact on short-run and long-run during the study period. Further, in the short run, one year lagged values of export and external debt have a positive impact on export performance. The coefficient of equilibrating error term suggests that the speed of adjustment (feedback effects towards the long-run equilibrium) takes a few years for full adjustment when there is a shock in the system. Therefore, export incentive and export performance in Ethiopia have a direct relationship both in the short run and in the long run