Real Exchange Rate and Export Competitiveness of Ethiopia

In developing countries foreign exchange is taken as ‘engine for growth’ because essential imports for the country are transacted by foreign currency. The role of export in boosting once economic growth is increasing from time to time. Global export competition is increasing recently. Countries try to increase their export earnings by using different mechanisms. In order to increase export, the role of real exchange movement is vital. The work tried to see the relationship between export competitiveness and real exchange rate of the country by dividing the export model into two; Export supply and export demand model. In the work determinants of both models were identified. The work employed Vector Error Correction (VEC) model to analysis the relationship between the variables included. This work can play major role for students who want to write studies in the area for master thesis and others. Application of econometrics to see the dynamics of variables is getting more importance and the work play crucial role in filling reference materials shortage in the area. The work also can help policy makers in formulating policies related to export and how they can boost export earnings.