Unlocking Export Potential and the Influence of Country-Specific Characteristics : Evidence from Ethiopia

This paper examines the gap between Ethiopia's actual and potential exports and the extent to which country-specific social, political and institutional factors have impacted the export gap. A stochastic frontier analysis of gravity model of trade is applied to panel data that covered Ethiopia's 45 trading partners during 2001–2012. Empirical results demonstrate that Ethiopian exports are very distant from their frontier levels with significant influence of country-specific socio-political-institutional constraints. Thus, the paper stresses the need for Ethiopia to look beyond trade policy if it is to realise its full export potential. It appears particularly beneficial to eliminate internal constraints such as those related to the legal and institutional framework, bureaucracy, politics, macroeconomic policy, skills of personnel, and infrastructure