The Contribution of Export Diversification for Economic Reform in Ethiopia. Lessons from Chinas Economic Reform

Bachelor Thesis, 2020

10 Pages






Ethiopia’s Foreign Trade and Export Policy
Ethiopia Export performance
Evolution of Ethiopian Trade policy

Evolution of Chinas Trade development policies
Import substitution and Marginal Export promotion
Export promotion neutralizing import substitution (1984-1990)
Export promotion and marginal trade liberalization (1991-1993)
Radical trade liberalization (1994-2001)
Fulfilling commitments to access to WTO and continued trade liberalization (2002-2005)
Trade policy adjustment and growth pattern transformation (2006-2008)
Addressing and recovering from the global financial crisis (2008-now)

What Can Developing Countries Learn from China Enormous Growth?
Policies to Encourage FDI-led Exports in Ethiopia
Promotion of Exports through Special Economic Zones (SEZs)
Openness to international trade
Physical and Technological Infrastructure
Modernize economic sector
Exchange rate policy




Export diversification on financial boom has been a controversial problem in the empirical literature for a long time. The motive behind this paper is to analyze, why Ethiopia battles to promote and diversify its exports and what are the engines of impressive boom of China’s foreign trade, assuming any; lessons can Ethiopia take from Chinas foreign exchange journey, since it has been the most profitable developing nation in this contemporary generation of globalization.

Keywords: Ethiopia; Diversify exports; Economic Reform; Trade Policy.


The issue of accelerated financial increase has been the principal agenda in economic coverage formula for most of the Sub-Saharan Africa (SSA) and different developing nations of the world. The records of the financial overall performance of most SSA counties show off that they had been performing higher earlier than their colonial independence than today.

The economic boom of existing day developed countries like the United States, Canada, Australia and New Zealand is mostly attributed to international exchange. International exchange has been given a great deal significance in the policy formulation of many LDC. Maddison (2007) and Mkandawire & Unies (2004) contended that International exchange has additionally performed a vital position in the historical development of the third world countries. South Korea, Taiwan, Hong Kong and Singapore have been generally attributed to the overall performance of the exterior sector.

Ethiopia has actively pursued the import- substitution industrialization approach in the course of the Imperial and Derg regimes. After the fall of the Dergue regime, however, the contemporary regime initiated trade liberalization. An empirical investigation to discover out the contribution of exports to economic growth is very integral part.

Export diversification has been the concern of most developing nations such as Ethiopia. Despite such a concern, few developing nations in East and South East Asia have managed to attain a diversified export shape with increased extent of manufactures. Diversification and structural transformation play vital roles in influencing the macroeconomic overall Performance of low-income countries (LICs) Diversification in exports and in domestic manufacturing has been conducive to faster economic boom in LICs. Accelerated diversification is additionally associated with decrease output volatility and larger macroeconomic stability.

Ethiopia’s Foreign Trade and Export Policy

Ethiopia Export performance

Ethiopia’s exports reached a never-before-seen stage of $2 billion in the simply carried out fiscal year. This export degree is an incredible 38 percentage extend from the $1.5 billion in exports registered the preceding year, and almost three instances the common annual export stage of the prior decade (2017-2018). Encouragingly, expand in exports has been broad-based in terms of each commodities and country of vacation spot (see below). Data from destination nations on their stated degree of imports from Ethiopia confirmed sturdy increase remaining year, suggesting there is little motive to doubt the reliability of country wide export records compiled by way of the Ethiopian Customs Authority.

Exports of items in Ethiopia are solely about 7% of GDP, in contrast to common of close to 30% in Sub Saharan Africa. Ethiopia's complete exports had been greater than that of Vietnam in the 1980s however are now simply a tiny fraction.

Ethiopia's export report ought to be considered as one of long-standing under-performance; however one whose current surge may probably mark a great turning point.

Abbildung in dieser Leseprobe nicht enthalten

Source: Ethiopian Revenue and Customs Authority

Evolution of Ethiopian Trade policy

Ethiopia has chronically run a horrible balance of payments. The ordinary deficit ensures Ethiopia's perpetual indebtedness to the industrial banks of the prosperous industrial nations. In 1997, Ethiopia's whole exterior debt stood at US$10 billion. 42.7% of Ethiopian exports through price had been delivered to Asian nations. Djibouti is Ethiopia's number-one regional exporter, whilst Kenya is second. Ethiopia's primary imports are ingredients, fertilizers and live hybrid animals.

Ethiopia's stability of trade deficit can be mostly defined through the unequal terms of change between agricultural commodities and capital items. Global markets accord a larger charge to commodities that are manufactured or "value-added" than to those that are in their raw form. Ethiopia is already a member of the Common Market for Eastern and Southern Africa (COMESA)

Evolution of Chinas Trade development policies

The quick upward push of China is rapidly reshaping the world economy. With an annual boom charge of 9.6% at some stage in the period 1979–2005 and a double-digit exchange rate, China is integrating itself into the world buying and selling system and marching towards turning into an economic superpower. Indeed, it used to be already the fourth greatest economic system and the third greatest buying and selling country in 2006. As Eichengreen and Tong notes, ‘‘China’s significance as an meeting platform for exports of manufactures, a destination for overseas investment, and a client of imported technology, raw substances and industrial items is now not a one-time shock; rather, it is an ongoing procedure constantly reshaping the stability of international supply and demand.’’

China stays a puzzle to many observers due to the nature and influence of its change and investment policy. OECD working paper shows that China's economic system has a good potential to come to be the world's pinnacle exporter. For others, China's achievements had been no longer resulted from trade and investment liberalization. Rather, it displays the refined use of safety tools. China has used vary of subsidies to motivate the manufacture of items intended for export.

This chapter looks at the evolution of China's foreign exchange coverage from a trade and development perspective. It argues that neither free trade nor safety is an entire reply to development.

Import substitution and Marginal Export promotion

China had followed the former Soviet Unions’ fashion of industrialization from 1949 and import substitution had been a longstanding key aspect in Chinese exchange policy until the early 1990s. Stressing on the improvement of heavy industries, China implemented import substitution approach via “forward-linkage” that the industrialization was once in the beginning fostered from down-stream sectors in which China had the least comparative benefits in order to provide capital tools and intermediate items for different sectors. It contrasted to the approach of different East Asian countries, which pursued the “backward-linkaged” industrialization, beginning from labor-intensive sectors by using producing and exporting nondurable customer items and then progressively inducing needs from capital and knowledge intensive sectors. The strategy which China had accompanied for almost thirty years earlier than the economic reform led to excessive price of financial inefficiency, bottleneck of indispensable industrial intermediate goods, scarcity of overseas exchanges and client goods, and low average actual wage.

The approach used to be modified in 1980 due to the widespread economic reform and open-door coverage initiated through Mr. Deng Xiaoping. Significantly, exports in labor-intensive sectors, such as textiles, garb and footwear, boomed once producers may want to understand and foresee the “right” relative rate in the market. Export incentive policies, however, nonetheless regarded to be marginal in terms of the percentage of offsetting import substitution. Regional preferential policies, international exchange retention system, and secondary global exchange market (FEACs, Foreign Exchange Adjustment Centers) had been entirely put into exercising on an experimental basis.

Export promotion neutralizing import substitution (1984-1990)

In the mid-1980s, export advertising measures, normally which includes export tax rebate, export subsidy, international trade retention quota and many trade charges system, were formally hooked up and steadily generalized nation-wide via the trade reform schemes carried out in 1984 and 1988. However, import exchange barriers, quota and licensing necessities in particular, nevertheless remained high. In addition, real exchange price was once overestimated about 32% in common due to the hyperinflation that occurred in 1985 and 1988, and the discrepancy between professional trade fee and FEACs charge have been growing significantly from 1986 to 1990. Thus, the trade development approach in this duration ought to be described as “export promotion neutralizing import substitution” or “protected export promotion” below which both exportable and importable sectors have been fostered to enlarge at the cost of non-trade sectors. However, the general trade orientation at the duration used to be nevertheless biased towards import substitution in the economy.

Double-structure incentive measures are strongly related to the political economic system of China's financial reform in the mid of 1980s. New activity organizations of export sectors have been inspired to grow, while inefficient state-owned industrial sectors had been shielded from the exterior opposition in the ordinary regime of import substitution

Export promotion and marginal trade liberalization (1991-1993)

With the growing effectively and competitiveness of Chinese economy, the huge trade coverage adjustments occurred in 1991. Much bolder trade liberalization was once launched to minimize tariff rates, import obligatory plans, import quotas and licenses. Furthermore, import adjusting duty, export subsidies and import substitution measures had been declared to be eliminated. The rate device became extra sound through alternate liberalization, and manufacturing and trade sample grew to become extra “natural” in financial sense. The financial distortion was once progressively lessoned.

However, the degree of alternate safety nevertheless remained high, if in contrast to the international level. The common implemented tariff charge was once 43%, and the insurance ratio of non-tariff barriers used to be 51%. The restrictiveness and distortion of international exchange control system remained adverse to export sectors. The actual trade price of RMB used to be overrated about 44% in average.

Radical trade liberalization (1994-2001)

China Communist Party (CCP) introduced to set up “the Socialism Market System with Chinese Characteristics” in 19 92. It furnished a greater creditable, predicable, and foreseeable dedication to pursue market-oriented financial reforms. Since then, the central authorities launched a collection of huge reforms, consisting of finance, banking, budget, taxation, trade, state-owned enterprises, administrative organizations, etc. Under such circumstances, it used to be the excessive time for China to begin a greater radical trade liberalization process. Meanwhile, the Chinese delegation started formal and substantial exchange negotiation with major GATT contracting events in order to resume its “legal reputation in the GATT”.

In 1994, the Chinese authorities promulgated the Foreign Trade Law that laid out the legal basis for current Chinese trade policy regime. A quantity of exchange reform measures have been taken to meet inner objectives and external pressures. The dual change price system was once also abolished with the aid of merging into a unified, managed and floated charge.

Fulfilling commitments to access to WTO and continued trade liberalization (2002-2005)

China grew to become a formal member of the WTO in December 2001. From 2002 to 2005, China totally carried out WTO commitments and successfully promoted the well-designed, market-oriented and rule-based financial and exchange liberalization, which led to a extensive extend on the transparency of trade legal guidelines and rules as well as the administration of trade policies.

The most putting reform used to be the modification of the Foreign Trade Law in December 2004. According to the new law, trade approval device used to be cancelled, and all domestic organizations and folks ought to loved buying and selling rights of exports and imports, which had been solely entitled to international organizations and some chosen large state-owned organizations and monopolistic trade companies.


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The Contribution of Export Diversification for Economic Reform in Ethiopia. Lessons from Chinas Economic Reform
International Business
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ISBN (Book)
contribution, export, diversification, economic, reform, ethiopia, lessons, chinas
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Anonymous, 2020, The Contribution of Export Diversification for Economic Reform in Ethiopia. Lessons from Chinas Economic Reform, Munich, GRIN Verlag,


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