DOES AFRICAN GROWTH AND OPPORTUNITY ACT BENEFITS ETHIOPIAN EXPORT, TRADE BALANCE AND FOREIGN EXCHANGE RESERVE?

Abstract

This paper examines the effect of preferential trade agreement, especially African Growth and Opportunity Act, on selected macroeconomic variables, such as export, trade balance, and foreign exchange reserve. The study covers 40 years of time series data, starting from 1981 to 2020, collected from NBE and World Bank database. The data is analyzed using ARDL model to get long run and short run relationship between AGOA among selected variables. The results largely indicate that AGOA preferences for Ethiopia has a positive and significant impact on all out come variables, namely, total export, foreign exchange reserve and trade balance of Ethiopia. The implication of these findings is that the recent termination of AGOA scheme would have detrimental adverse effect on the overall exports, reserve and trade balance of Ethiopia. Hence the government should search for other alternative preferential trade unions. Moreover, strong political commitment is a key if Ethiopia is to access new export destinations and/or rejoin AGOA scheme, among others