Analysis of Ethiopia's agricultural foreign trade

Gains from international trade have significant influences on the economic growth and development of developing countries like Ethiopia. Since the country is primarily an agrarian, its foreign currency revenues heavily depend on the agricultural sector. The study aims to examine the agricultural exports between Ethiopia and its 74 main partners and determine the factors affecting the country's agricultural exports through the gravity model using panel data for the period 2007-2020. This model is one of the most used empirical tools for analysing trade flows between two countries. Agricultural export value data was used as the dependent variable in the model; GDP, population, distance, exchange rate, trade openness, foreign direct investment flow, common border, common official language, COMESA (Common Market for Eastern and Southern Africa) membership and EBA (Everything But Arms) trade preferential scheme with the European Union were used as explanatory variables. Poisson Pseudo Maximum Likelihood and Estimated Generalized Least Squares estimators were utilised in the place of traditional estimators in model estimation to overcome issues caused by heteroscedasticity and autocorrelation. According to the result of the analysis, both the GDP and population of Ethiopia and the trading partner countries, the distance between Ethiopia and the partner countries, the common border, openness to trade, and the EBA dummy variable had a positive and statistically significant effect on agricultural exports. The exchange rate, foreign direct investment, and the COMESA dummy were found to have a negative but significant impact on agricultural exports. Common official language dummy variable was statistically insignificant.