Sources of Ethiopia’s Export Growth: a Constant Market Shares Decomposition Analysis

Ethiopia’s exports grew by more than 700% in real terms between 1995 and 2014. For a landlocked country depending much on primary products and with little success in export diversification, the growth recorded over the past two decades is no mean feat. In this study we assessed the sources of this rapid export growth during the post-reform period of 1995-2014. We employed a refined version of the constant market shares model that overcomes the “order-problem” and the “index number problem” inherent in its “traditional” formulation. Our decomposition exercise reveals the importance of two key factors as drivers of Ethiopia’s export growth: the growth in total world trade and improvements in Ethiopian competitiveness. While the geographic distribution of the country’s exports has been favorable, an unpleasant outcome is that the composition of the country’s exports has been slowing down the growth of its exports over the past two decades.