Effect of Devaluation of Currency on Ethiopia's Major Export Commodities: The Case of Coffee, Oil Seeds and Hides and Skins

Devaluation of currency has been stipulated and utilized increasingly as a stabilization device in
developing countries, as part of International Monetary Fund (IMF) mainstream adjustment
programs. The policy measure of currency devaluation has aimed to make export products more
competitive and permutes demand towards domestically produced goods eventually boosting the
overall output of the country. The objective of this work is to add to the existing of multiple
theoretical and empirical studies that have examined the effect of currency devaluation on the
Ethiopian major export commodities using annual time series data for the period 1985-2018. To
determine the relation between dependent and the independent variables, both analytical
(qualitative) explanations and econometric analysis are used in the study. The key results of the
present study revealed that Birr devaluation improve the major export product of Ethiopia in the
short run and deteriorates it in the long run. The study also found that the government, through
outstanding credit loan availability and political instability, may play a key role in increasing
and decreasing exports. Other variables like foreign direct investment and real gross domestic
product with expected positive sign are also found to be statistically significant in explaining
export in the long-run. The study shows that the country to be on the right truck to increase
export earnings in the long run it is better not to devaluate further and the concerned body
should work to strengthen and extend political stability and foreign investment polices since it
helps to increase the performance of export