MODELING TOTAL OILSEED EXPORT PERFORMANCE IN ETHIOPIA: APPLICATION OF DYNAMIC PANEL GRAVITY MODEL

Abstract

Ethiopia’s oil seed export provides income to millions of growers and others market actors along the value chain and it is the second among commodities generating currency for the country. Though there were plentiful empirical evidence in modelling oil export performance in Ethiopia, communalities in terms of econometric techniques is disperse. This inconsistence poses a problem to make dependable and consistent inference across economies. Thus, this study aimed to model oil seed exports performance (in the dimension of export sales) in Ethiopia’s via more realistic model application, dynamic panel gravity model. The study utilized panel data that comprising 46 countries of the Ethiopia’s oil seed importers for 19 years from the period 2002 to 2020. To overcome the problem of spurious regression, the panel unit root test of Levin Lin Chu was employed for each variable and third order lag length endogenous variables were selected based on smallest of MBIC and MQIC values for the model estimation. Among the three model estimators considered in the study, model with system GMM estimator (BB model) was considered an appropriate one based on its out-of-sample prediction ability by RMSE and bias of autoregressive coefficient. The estimated model result revealed that 1% increase in lagged EOSE, real GDP of Ethiopia, population of importing countries, openness to trade of both Ethiopia and importing countries, and foreign direct investment inflow of Ethiopia, and 1% decrease in weighted distance, ceteris paribus, turn out were found to increase Ethiopia’s oil seed exports performance by around 0.207%, 1.98%, 0.424%, 1.93%, 1.02%, 0.188%, and 1.314%, respectively. Moreover, the magnitude of oil seed export potential was found the highest with Asian, European and then African countries as a continent. The analyses also implied policies that would promote foreign direct investment, supply capacity, trade liberalization, and relatively cheaper transportation costs in order to progress the Ethiopia’s oil seed exports performance. This study recommended that export diversification and bilateral trade negotiations stepping up the current status of the external sector are the necessary steps to exploit Ethiopia's untapped oil seed export potential.