Abstract:
Ethiopia's flower industry is a current illustration for how much potential the country has
in agricultural production. However, in spite of being supporter on several accounts, the
country cut flower exports at a minimal in comparison to the potential it has. The main
objective of this study is to evaluate the effect of macroeconomic variables on export
earnings of Ethiopian cut flower export. Annual time series data (2000-2019) collected
from the country’s different institutions, namely: National Bank of Ethiopia (NBE),
Ministry of Trade (MOT), Development Bank of Ethiopia (DBE) and Ethiopian Custom
Authority (ECA) was employed. Based on their nature determinants were classified in to
three different aspects; macroeconomic, international trade flow and investment decision
factors in order to overcome the problem of spurious regression.
A Bound testing Autoregressive Distributed Lag (ARDL) model and an Error Correction
Model (ECM) was used to establish the presence of a long run and short run relationship
between determinants and cut flower export earnings. The appropriate time series models
were ARDL(1,1,2,1) for macroeconomic factors, ARDL(1,2,2,0) for international trade
flow factors and ARDL(1,2,0) for investment decision factors.
The result of this study indicated that inflation rate, real interest rate, foreign direct
investment, term of trade and trade openness have significant effect on cut flower export
earnings but GDP of home country and exchange rate have not significant effect in the
long-run. In the short run, all independent variables have a significance effect on cut
flower export earnings except exchange rate. Real interest rate, inflation rate, GDP,
exchange rate and investment loan have negative effect on cut flower export earnings. On
the other hand, term of trade, trade openness and foreign direct investment have positive
effect both in the long-run and in the short run. Agriculture plays an important role
within the economic process of the country for a century. So by improving such problems
indicated from the result we can make our cut flower export more competitive and make
as a back bone of our economy
