The Effect of Export-Led Growth Strategy on the Ethiopian Economy

The research is aimed to scrutinise empirically the ELG (export-led growth strategy) on Ethiopia's economy. The causal relationship between export and economic growth of the country was analyzed with the application of Granger (1969) causality test using annual data for the period 1974 to 2009. It revealed that the decline in economic growth in the country pre reform period coupled with the alarming population growth led to stagnation and even a continual decline in the income of the country. This led to closer scrutiny of export growth on economic growth to achieve a sustained economic growth. Since 1992, the economic growth policy of Ethiopian government was guided by the idea of export-led growth. The view of export-led growth conceives growth of exports as having a favorable impact on economic growth. According to this view, export expansion to foreign markets improves resource allocation and production efficiency. Export is claimed as the 'engine of growth'. The results of the study show that there is evidence of uni-directional causality between export and economic growth for Ethiopia. Export growth causes economic growth. Thus, the results are favorably comparable to those obtained in the literature (Shan and Sun, 1998).