Explaining African Growth Performance: The Case of Ethiopia ; By Alemayehu Geda With Befekadu Degefe

I. Introduction
With a population of over 70 million (in 2005), Ethiopia is the second populace country in Africa. It is also one of the poorest country (with 44.2 percent of the population being below the poverty line in the year 2000). It has never been colonized, and has unique and long history that stretches back to antiquity. The Ethiopian economy is a subsistent one that is highly dependent on agriculture, which in turn depends on vagaries of nature. Over 85 percent of the population depends on this sector for its survival. Agriculture accounts for half of the GDP and more than90 percent of the export earning. The industrial sector accounts for only about 12 percent of GDP. The balance is accounted by the service sector.
The high dependency of economic growth on timely and adequate rainfall and the country’s vulnerability to terms of trade and similar external shocks are structural constraints facing the economy. The poor growth performance in 1984/85 with the decline of real value-added in the agricultural sector by more than 20 percent and real GDP by more than 9 percent (the highest during the last four decades) is explained by the worst drought in that year. On the other hand, the high growth rates in 1986/87, 1997/98 as well as 2000/2001 are owing to bumper harvest, which in turn are results of good and timely rainfall and recovery from a very small base. Thus, in explaining growth in Ethiopia it will be imperative to examine the agricultural sector (see Alemayehu 2001), its linkage with the other sectors and household behavior in rural Ethiopia.
The second factor of critical importance in explaining the performance of the Ethiopian economy is the external environment, which has an important bearing on the functioning of the economy. The economy is dependent on imported inputs such as fertilizers, chemicals, raw materials that are buoyant or fall victims to availability of foreign exchange. The fact that the country is dependent on coffee export for not less than 65 per cent of its annual foreign exchange earnings has implications not only to the coffee sector, but also to the rest of the economy. Thus, the terms of trade shocks in an economy that is totally devoid of instruments for their neutralization has critical bearing on its performances.
The influences of these exogenous determinants of growth on economic performance have in recent years been accentuated by poor policy, which on the whole have been pro-rather than counter-cyclical. When there is drought, government….. Click here to read Explaining African Growth Performance The Case of Ethiopia

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