The Impact of foreign exchange rate depreciation on export performances and its macroeconomic reprecusions
the case of Ethiopia
The objectivesof the study areto look at the positive impact of foreign exchange depreciations on export performance without affecting foreign exchange stabilityand its other macroeconomic repercussions on Ethiopian economy. And come up with alternative policy options in order to enhance export performance of the country without affecting foreign exchange rate stability as well as managing macrocosmic repercussions of exchange rate depreciations properly. The study finds out real effective exchange rate of Ethiopian currency is overvalued. Gradually depreciation of the local currency value was resulting in an increase of export values hand on hand. However, its impact on external debt amount and debt services has been simultaneous to the extent of deprecation units.
Since Ethiopian export items market are both price and income inelastic as the exports are dominated by agricultural commodities, the lion share accounted by coffee, local currency depreciation’s impact on export performance is not propounding. This is because Ethiopia’s total production and productivity is by far low than competitors in order to get price competiveness that results from local currency depreciations. Besides, depreciating local currency does not discourage import as majority of import items are either capital goods which are not locally produced or basic necessity of goods that have excess demand. Hence, local currency depreciations end up aggravation the prevalent double digit inflation.
The study recommends, in order bringing fundamental change on exportperformance, working on policies and strategies that bring an increase in total production and productivity are key areas to deal with in the long run. Moreover, produce domestically light machineries and substituting imported raw materials locally as well as mitigating domestic supply constraints of basic necessity goods are very critical policy issue.
Click the button and follow the links to connect to the full text. (KDI CL members only)
Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.