The Dynamics of Trade Liberalization and Economic Growth of Ethiopia: A Vector Error Correction (VEC) Model Approach

Teshome Hailemeskel Abebe

doi:doi:10.11648/j.ijebo.20200804.11

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The Dynamics of Trade Liberalization and Economic Growth of Ethiopia: A Vector Error Correction (VEC) Model Approach

Teshome Hailemeskel Abebe

Published in International Journal of Economic Behavior and Organization (Volume 8, Issue 4)

Received: 27 October 2020 Accepted: 21 November 2020 Published: 8 December 2020

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Abstract

Economic growth is one of the primary goals of developing countries like Ethiopia. Hence, investigating the causes of economic growth in such country is of great importance. Thus, in this study, the impact of trade openness on economic growth of Ethiopia from 1982 to 2019 on data obtained from World Bank (WB) database were investigated. The methodology employed in this study is vector error correction model (VECM). A Unit root test was carried out using the ADF and PP tests. From unit root results, all series are non-stationary at levels. The first differences of all series, however, were found to be stationary. For the study period, there was one co-integrating relationship. The estimated long run model shows the existence of strong positive long-run relationship between trade openness and economic growth. The Block Exogeneity Wald Tests result shows a one-way causality running from trade openness to economic growth. The estimated coefficient of the error correction term (α = -0.702) is negative and statistically significant at the one percent level, indicating about 70.2% of the short run disequilibrium in economic growth will be adjusted within a year (the same year). Moreover, in the short run, one-time lagged trade openness has a significant positive impact on the current growth rate of real GDP. Furthermore, the model diagnostic result shows non-autocorrelation and normal residuals.

Published in	International Journal of Economic Behavior and Organization (Volume 8, Issue 4)
DOI	10.11648/j.ijebo.20200804.11
Page(s)	81-91
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Economic Growth, Trade Openness, Unit Root, Co-integration, Vector Error Correction Model

References

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[11]	Zewdu Bedasa & Minyahil Alemun. (2017). Economic Growth Nexus Trade Liberalization in Ethiopia: Evidence from the Johnson’s Multivariate Cointegration Analysis. International Journal of Latest Research in Engineering and Technology (IJLRET); ISSN: 2454-5031. Vol 03 PP. 53-59.
[12]	Salinas, G and Aksoy, A. (2006). Growth Before and After Trade Liberalization. World Bank Policy Research Working Paper (4062).
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Teshome Hailemeskel Abebe. (2020). The Dynamics of Trade Liberalization and Economic Growth of Ethiopia: A Vector Error Correction (VEC) Model Approach. International Journal of Economic Behavior and Organization, 8(4), 81-91. https://doi.org/10.11648/j.ijebo.20200804.11

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Teshome Hailemeskel Abebe. The Dynamics of Trade Liberalization and Economic Growth of Ethiopia: A Vector Error Correction (VEC) Model Approach. Int. J. Econ. Behav. Organ. 2020, 8(4), 81-91. doi: 10.11648/j.ijebo.20200804.11

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Teshome Hailemeskel Abebe. The Dynamics of Trade Liberalization and Economic Growth of Ethiopia: A Vector Error Correction (VEC) Model Approach. Int J Econ Behav Organ. 2020;8(4):81-91. doi: 10.11648/j.ijebo.20200804.11

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@article{10.11648/j.ijebo.20200804.11,
  author = {Teshome Hailemeskel Abebe},
  title = {The Dynamics of Trade Liberalization and Economic Growth of Ethiopia: A Vector Error Correction (VEC) Model Approach},
  journal = {International Journal of Economic Behavior and Organization},
  volume = {8},
  number = {4},
  pages = {81-91},
  doi = {10.11648/j.ijebo.20200804.11},
  url = {https://doi.org/10.11648/j.ijebo.20200804.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijebo.20200804.11},
  abstract = {Economic growth is one of the primary goals of developing countries like Ethiopia. Hence, investigating the causes of economic growth in such country is of great importance. Thus, in this study, the impact of trade openness on economic growth of Ethiopia from 1982 to 2019 on data obtained from World Bank (WB) database were investigated. The methodology employed in this study is vector error correction model (VECM). A Unit root test was carried out using the ADF and PP tests. From unit root results, all series are non-stationary at levels. The first differences of all series, however, were found to be stationary. For the study period, there was one co-integrating relationship. The estimated long run model shows the existence of strong positive long-run relationship between trade openness and economic growth. The Block Exogeneity Wald Tests result shows a one-way causality running from trade openness to economic growth. The estimated coefficient of the error correction term (α = -0.702) is negative and statistically significant at the one percent level, indicating about 70.2% of the short run disequilibrium in economic growth will be adjusted within a year (the same year). Moreover, in the short run, one-time lagged trade openness has a significant positive impact on the current growth rate of real GDP. Furthermore, the model diagnostic result shows non-autocorrelation and normal residuals.},
 year = {2020}
}

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TY - JOUR
T1 - The Dynamics of Trade Liberalization and Economic Growth of Ethiopia: A Vector Error Correction (VEC) Model Approach
AU - Teshome Hailemeskel Abebe
Y1 - 2020/12/08
PY - 2020
N1 - https://doi.org/10.11648/j.ijebo.20200804.11
DO - 10.11648/j.ijebo.20200804.11
T2 - International Journal of Economic Behavior and Organization
JF - International Journal of Economic Behavior and Organization
JO - International Journal of Economic Behavior and Organization
SP - 81
EP - 91
PB - Science Publishing Group
SN - 2328-7616
UR - https://doi.org/10.11648/j.ijebo.20200804.11
AB - Economic growth is one of the primary goals of developing countries like Ethiopia. Hence, investigating the causes of economic growth in such country is of great importance. Thus, in this study, the impact of trade openness on economic growth of Ethiopia from 1982 to 2019 on data obtained from World Bank (WB) database were investigated. The methodology employed in this study is vector error correction model (VECM). A Unit root test was carried out using the ADF and PP tests. From unit root results, all series are non-stationary at levels. The first differences of all series, however, were found to be stationary. For the study period, there was one co-integrating relationship. The estimated long run model shows the existence of strong positive long-run relationship between trade openness and economic growth. The Block Exogeneity Wald Tests result shows a one-way causality running from trade openness to economic growth. The estimated coefficient of the error correction term (α = -0.702) is negative and statistically significant at the one percent level, indicating about 70.2% of the short run disequilibrium in economic growth will be adjusted within a year (the same year). Moreover, in the short run, one-time lagged trade openness has a significant positive impact on the current growth rate of real GDP. Furthermore, the model diagnostic result shows non-autocorrelation and normal residuals.
VL - 8
IS - 4
ER -

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Teshome Hailemeskel Abebe

Department of Economics, Ambo University, Ambo, Ethiopia

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Teshome Hailemeskel Abebe. (2020). The Dynamics of Trade Liberalization and Economic Growth of Ethiopia: A Vector Error Correction (VEC) Model Approach. International Journal of Economic Behavior and Organization, 8(4), 81-91. https://doi.org/10.11648/j.ijebo.20200804.11

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ACS Style

Teshome Hailemeskel Abebe. The Dynamics of Trade Liberalization and Economic Growth of Ethiopia: A Vector Error Correction (VEC) Model Approach. Int. J. Econ. Behav. Organ. 2020, 8(4), 81-91. doi: 10.11648/j.ijebo.20200804.11

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AMA Style

Teshome Hailemeskel Abebe. The Dynamics of Trade Liberalization and Economic Growth of Ethiopia: A Vector Error Correction (VEC) Model Approach. Int J Econ Behav Organ. 2020;8(4):81-91. doi: 10.11648/j.ijebo.20200804.11

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@article{10.11648/j.ijebo.20200804.11,
  author = {Teshome Hailemeskel Abebe},
  title = {The Dynamics of Trade Liberalization and Economic Growth of Ethiopia: A Vector Error Correction (VEC) Model Approach},
  journal = {International Journal of Economic Behavior and Organization},
  volume = {8},
  number = {4},
  pages = {81-91},
  doi = {10.11648/j.ijebo.20200804.11},
  url = {https://doi.org/10.11648/j.ijebo.20200804.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijebo.20200804.11},
  abstract = {Economic growth is one of the primary goals of developing countries like Ethiopia. Hence, investigating the causes of economic growth in such country is of great importance. Thus, in this study, the impact of trade openness on economic growth of Ethiopia from 1982 to 2019 on data obtained from World Bank (WB) database were investigated. The methodology employed in this study is vector error correction model (VECM). A Unit root test was carried out using the ADF and PP tests. From unit root results, all series are non-stationary at levels. The first differences of all series, however, were found to be stationary. For the study period, there was one co-integrating relationship. The estimated long run model shows the existence of strong positive long-run relationship between trade openness and economic growth. The Block Exogeneity Wald Tests result shows a one-way causality running from trade openness to economic growth. The estimated coefficient of the error correction term (α = -0.702) is negative and statistically significant at the one percent level, indicating about 70.2% of the short run disequilibrium in economic growth will be adjusted within a year (the same year). Moreover, in the short run, one-time lagged trade openness has a significant positive impact on the current growth rate of real GDP. Furthermore, the model diagnostic result shows non-autocorrelation and normal residuals.},
 year = {2020}
}

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