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Abstract
The relationship between Trade Liberalization and Economic Growth has received wide attention. Since 1992, Ethiopia had embarked on the most comprehensive financial and structural reforms. The purpose of this paper is to investigate empirically the relationship between trade liberalization and economic growth of Ethiopia using neo-classical growth model. Exports, industrialization, imports an agriculture have been included in the general growth model which has been used for deriving empirical results. The empirical results suggest the importance of outward looking strategies in promoting growth of Ethiopia. The empirical findings underscore the fact that trade variable play an important role in enhencing the economic growth of Ethiopia. It also throws some light on the historical context and evolution of the current liberalization programme. The trade liberalization policy initiated has had impact in economic growth, we have statistically tried to evaluate the extent. The paper recommends the continuation of trade liberalization policy with vigour and commitment.
Introduction
THE GLOBALIZATION OF production process, market for goods and services as well as financial markets has heightened the debate on the linkage between trade policy and economic growth. Massive capital flows and trade liberalization have also brought to the forefront the debate on the linkage between trade policy and investment. Improved trade and investment performance is essential for economic growth and integration in the global market
Many believe that with other things given, countries that liberalize their external sector and reduce impediments to international trade can experience relatively higher economic growth. The argument is, in the absence of protective measures and other free market constraints; the performance of an economy will be guided by the principle of comparative advantage.
The World Bank and the International Monetary Fund (IMF) have endorsed this view and began to condition funds to member countries based on the implementation of trade liberalization. Liberalization in the sense of trade reform has also been promoted by many developing countries in 1980s and 1990s mainly because of World Bank and the IMF policy conditions.
It is generally agreed that an open trade regime is crucial for economic growth and development. There are many channels by which trade liberalization can influence economic growth.
1. In the traditional neoclassical model, export growth leads to economic growth directly through...