Abstract
This article attempts to assess Ethiopia’s trade potential and explore over and under-trade countries by using the gravity model. The coefficients thus obtained are then used to predict the trade potential of Ethiopia showing that this nation has significant trade potential with 118 countries. Ordinary Least Squares with Cross-Section data for the year 2016 have been used for the estimation. The results show that both basic gravity equations are subliminally reasonable, with statistically significant t-statistic values. The results also reveal that Ethiopia has noteworthy trade potential with African countries, but in the current scenario, Ethiopia’s actual trade is less than potential trade with neighboring countries. The model also shows that Ethiopia has tremendous trade potential with COMESA members and trade can more than double if barriers and constraints are removed.
Keywords: Augmented gravity model, trade potential, regional integration
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