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Trade deficits as development deficits: Case of Ethiopia

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  • Rekiso, Zinabu Samaro

Abstract

Even though there has been massive research on the impact of trade liberalization on various aspects of economic performance, its impact on trade deficits have been virtually ignored. This is partly due to the underlying theoretical framework which is based on patently unrealistic assumptions and which rules out chronic trade deficits. Within such context, the paper argues that there is no theoretical or empirical justification for postulating an automatically balancing external trade in developing countries. Using a historical case study of Ethiopia, it also shows that chronic deficits are fundamentally structural in nature and therefore cannot be reversed without bringing about structural transformation of the economy from low-skill, low technology productive structure to high-skill, high technology intensive productive structure. It also concludes that such structural transformation cannot be realized under a liberal external trade regime which forces a country to specialize based on its ‘natural’ comparative advantage.

Suggested Citation

  • Rekiso, Zinabu Samaro, 2020. "Trade deficits as development deficits: Case of Ethiopia," Structural Change and Economic Dynamics, Elsevier, vol. 52(C), pages 344-353.
    • Handle: RePEc:eee:streco:v:52:y:2020:i:c:p:344-353
    DOI: 10.1016/j.strueco.2019.12.006
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    2. Tran, T.N. & Nguyen, Thu Thuy & Nguyen, V.C. & Vu, T.T.H., 2020. "Energy Consumption, Economic Growth and Trade Balance in East Asia: A Panel Data Approach," OSF Preprints rd6kv, Center for Open Science.
    3. Benjamin Nitsche, 2021. "Embracing the Potentials of Intermodal Transport in Ethiopia: Strategies to Facilitate Export-Led Growth," Sustainability, MDPI, vol. 13(4), pages 1-21, February.
    4. Milovanović Goran & Milanović Sandra & Radisavljević Goran, 2020. "Structural Changes in Foreign Trade as a Factor of Competitiveness of the Republic of Serbia," Economic Themes, Sciendo, vol. 58(2), pages 149-170, June.

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    More about this item

    Keywords

    Trade deficits; Structural transformation; Liberalization;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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