Financial development and export diversification in Ethiopia: ARDL approach

Figures & data

Figure 1. Trends of export diversification and financial development.

Table 1. Summary statistics of variables used in the study

Variables	Observation	Mean	Std. Dev.	Min.	Max
Export diversification	40	.4062	.167	.209	.6937
Credit to private sector% GDP	40	16.1876	5.5599	6.1077	34.5369
Trade liberalization	40	0.65	0.483	0	1
Official exchange rate	40	9.2931	7.641	2.07	28.3257
External debt	40	59.6873	36.0638	10.5085	147.181
Real gross domestic product	40	5.9786	6.6245	−11.1444	13.8593

Source: WB & NBE data, 2022

Figure 2. The relationship between dependent and independent variables.

Table 2. Stationary test statistics and order of integration

	ADF test statistics at level	1^st difference	Stationary level
Export diversification	−1.412	−8.425	I(1)***
Credit to private sector	−0.697	−4.775	I(1)***
Official exchange rate	−2.894	−5.970	I(1)***
Trade liberalization	−6.164	−10.247	I(0)***
External debt	14.142	2.659	I(0)***
Real gross domestic product	−4.363	−7.793	I(0)***

Note: *** represents significant at 1% level of significance

Table 3. Optimal lag selection of variables

Variables	0	1	2	3	4
Export diversification	−1.87316	−2.00504	−2.15742	−2.16892*	−2.14891
Credit to private sector% GDP	6.31894	4.71068	4.69874*	4.78285	4.88062
Real gross domestic product	1.33106	−.542325	−.641868*	−.442783	−.343241
External debt	6.97703	2.43678	2.38083*	2.44901	2.51856
Trade liberalization	10.1558	8.56844	8.66699	8.51751*	8.76446
Official exchange rate	6.71704	6.70521	6.78539	6.68072*	6.75745

Table 4. Short-run error correction model

ARDL(3 2 3 3 2 2)		Dependent variable:export diversification
Independent var.	Coefficient	Std. Error	T- ratio	P-value
$\mathrm{\Delta }\mathrm{E}\mathrm{D}$ (−2)	−0.283	0.139	−2.03	0.053*
$\mathrm{\Delta }\mathrm{C}\mathrm{P}\mathrm{S}\mathrm{G}\mathrm{D}\mathrm{P}$ (−1)	−0.013	0.0051	−2.65	0.014**
$\mathrm{\Delta }$ TLB(−2)	0.143	0.106	1.35	0.190
$\mathrm{\Delta }$ OER(−2)	0.005	0.004	1.33	0.197
$\mathrm{\Delta }$ EDEBTGNI(−1)	−0.003	0.0012	−2.7	0.012**
$\mathrm{\Delta }$ GRGDP(−1)	−0.0096	0.0033	−2.96	0.007***
ECM(−1)	−0.7169	0.195	−3.68	0.001***
Constant	0.375	0.1086	3.45	0.002***

Note: * p < 0.1, ** p < 0.05, *** p < 0.01

Table 5. Long-run ARDL estimation result

ARDL(3,2,3,3,2,2)		Dependent variable:trade balance
Independent var.	Coefficient	Std. Error	T- ratio	P-value
ED(−3)	0.168	0.124	1.35	0.195
CPSGDP(−2)	−0.245	0.065	−3.78	0.002***
TLB(−3)	−2.31	0.773	−2.99	0.009***
OER(−3)	−0.322	0.213	−1.51	0.150
EDEBTGNI(−2)	−0.057	0.01	−5.71	0.000***
GRGDP(−2)	−0.105	0.021	−5.07	0.000***
constant	0.387	0.82	0.47	0.643

Note: * p < 0.1, ** p < 0.05, *** p < 0.01

Table 6. Bound test of ARDL estimation

	Critical value 90%		Critical value 95%		Critical value97.5%		Critical value 99%
K	I(0)	I(1)	I(0)	I(1)	I(0)	I(1)	I(0)	I(1)
5	2.26	3.35	2.62	3.79	2.96	4.18	3.41	4.68

F- statistics = 4.150

Figure 3. Stability, cumulative sum square plot, test of the mode.

Figure 4. Stability, cumulative sum plot, test of the model.

Table 7. Breusch-Godfrey LM test for autocorrelation Breusch-Godfrey LM test for autocorrelation

lags(p)	chi2	df	Prob > chi2
1	0.621	1	0.4305