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Determinants of Ethiopia's Livestock Exports: Analysis of Gravity Model of

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Abyss. J. Bus. Soc. Sci. Vol. 5, No. 1, 2020, 1-9
ISSN 2707-1340 (Online); 2707-1332 (Print) Abyssinia Journal of
© 2020 Wollo University Business and Social Sciences

Determinants of Ethiopia's Livestock Exports: Analysis of Gravity

Model of Trade
Yibrah Hagos Gebresilassie*1 Gabriel Temesgen Woldu1
1
Department of Economics, College of Business and Economics, Adigrat University, Ethiopia.
ABSTRACT
This paper aimed to examine the major determinants of livestock exports of Ethiopia through the generalised
gravity model of trade approach. Using secondary panel data for 16 years (2002/03–2018/19) and a total of
17 importing partner countries, the gravity model was estimated by the Poisson Pseudo Maximum
Likelihood (PPML) and the ordinary least square estimators to confirm the robustness of the findings. The
results of the analysis revealed that real gross domestic product, real gross domestic product per capita, the
population size of the importing partner countries, and the real exchange rate were the major gravity factors
affecting positively livestock export earnings. However, the geographical distance between the capitals of
economies was found to be affected negatively livestock export earnings. Livestock exports of Ethiopia
were consistent with the gravity model of trade theory. Thus, the Ethiopian government needs to priorities
policies and strategies that enhance export earnings from livestock and livestock products, which in turn
enhance the overall economic growth of the country.
Keywords: Ethiopia, Export, gravity model, livestock, trade

INTRODUCTION well-being of the poor rural households (Thornton,

2010). Because it acts as a coping strategy
Ethiopia, the second-most populous country next
mechanism and mitigates the risk of vulnerable
to Nigeria, is an agrarian country. Agriculture is
households. Also, the livestock subsector is
dominated by smallholders and remains to be the
considered an important source of nutritional
mainstay of the economy of Ethiopia (CSA, 2016).
security and draught power for poor rural
Despite declines its contribution to national real
households (Thornton, 2010). Most importantly,
GDP in the past years, agriculture continues to be
the livestock subsector is considered as the second
the leading sector in contributing to the GDP of the
driver of the Ethiopian economy, contributing 16
country. The agriculture sector, which holds the
to19 percent of national real GDP; 35 to 40 percent
lion share of Ethiopia's economy, remains the main
of the agricultural GDP, and 37 to 87 percent of
source of livelihood in rural Ethiopia, primary
the income of the household (CSA, 2016). In terms
commodities for export earnings, and raw
of livestock population, Ethiopia is the first in
materials for the home manufacturing industries
African and the tenth in the world. Accordingly,
(FAO, 2019; FDRE, 2016; UNDP, 2014). In 2018,
the national herd of the country comprises 59.5
the agriculture sector contributes about 35 percent
million heads of cattle, 59.5 million chicken, 30.7
to the national real GDP, accounts for the
million sheep, 30.2 million goats, 9 million
livelihoods of 68.2 percent of the Ethiopian
equines, 4.8 million camel, 28,000 pigs, and (CSA,
population, and 90 percent of earnings from
2016). In general, the productivity of livestock is
exports. Similarly, services and industry contribute
very low. Accordingly, the total production of
about 42 and 23 percent to the national real GDP
meat, eggs, and milk amount to 1.1 million tonnes,
and about 22.4 and 9.4 percent to employment,
419 million eggs per year, and 5.6 billion litres in
respectively (FAO, 2019; FDRE, 2016). About 70
2015 (CSA, 2016; FAO, 2019).
percent of the Ethiopian population keeps small
livestock, which is made of three cattle, three goats STATEMENT OF THE PROBLEM
and or sheep and some chickens (FAO, 2019).
Ethiopia has a huge livestock population, however,
The livestock subsector of agriculture contributes its share to domestic agricultural GDP and the
to remarkable progress in enhancing livelihood and national real GDP and the global export market is
quite small to its size (CSA, 2016). The livestock
*Corresponding Author Email: subsector is the main contributor to overall exports
Yibrah.hagos@adu.edu.et of the country and the overall growth of Ethiopia's
economy (FAO, 2019), but the share of its exports

1
 Abyssinia Journal of Business and Social Sciences Vol. 5, No. 1, 2020, 1-9
has decelerated for years. For example, in 2013/14,
the major share of livestock output comes mainly
from live animals, which was contributed 6.7
percent in the total value of livestock subsector
export earnings (UNDP, 2013). Similarly, the
share of the livestock export earnings has been
decreased to 6 percent in 2014/15 (UNDP, 2014).
Moreover, in 2017, the share of the livestock
subsector output to the overall national export
earnings reduced significantly to 3.4 percent
(UNDP, 2017). Therefore, despite the existence of
abundant studies on the determinants of the
agricultural sector exports in Ethiopia (Ketema,
2020; Teshome & Lupi, 2018; Mengistu, 2014;
Zeray & Demie, 2016; among others), none of
these studies has addressed the factors affecting
livestock subsector export earnings separately, and
its explanation remains less clear. Moreover, much
less is known about what factors affect livestock
exports of Ethiopia.
Thus, given the lack of empirical evidence on the
determinant factors affecting livestock exports of
Ethiopia and the comparative advantage that the
country has on livestock export earnings, it is
worthwhile to examine the determinants of
livestock exports of Ethiopia within a theoretical
gravity model framework as an estimation
technique. Identifying the determinant factors that
significantly influence the country's livestock
exports could enhance the export earnings of the
subsector and accelerate the overall economic
growth of the country. This study, therefore, fills
up this research gap by addressing the
determinants of livestock exports of Ethiopia.
OBJECTIVES
The main objective of this is to empirically
examine the major determinants of livestock
exports of Ethiopia using secondary panel data for
16 years (2002/03 2018/19).
LITERATURE REVIEW
Agriculture continues to be the foremost sector in
contributing to the GDP of a county and
employment opportunities. The sector, which holds
the lion share of developing countries' economy,
continues to be the major source of livelihoods for
the vast majority of rural poor people and primary
commodities for export earnings. Specifically,
livestock subsector of the agriculture sector
exports plays a crucial role in a country's economic
growth. In African countries like Ethiopia, the
export earnings mainly rely on agricultural primary
products. The theoretical literature on the factors
affecting trade flows is very diverse. The gravity
model of trade has been employed in agricultural
commodities and livestock exports literature to
explore the factors affecting the exports flows
using various determinant factors.
2
A study by Musa et al. (2020) evaluated the factors
affecting livestock exports of Somaliland. Data
were obtained from “the Somaliland Chamber of
Commerce, Industry and Agriculture” from 2008
to 2017 and analysed using a time series
econometrics approach. The results of the analysis
indicated that the number of active livestock
exporters, imposing livestock ban by importing
countries, market location, and the ‘Hajj’ season
were the major determinants of livestock export in
Somaliland. Furthermore, the findings of the study
revealed that quarantine stations practices had a
considerable impact on livestock exports.
Saleh et al. (2019) analysed factors affecting
China's meat industry exports using the gravity
model of trade. The study used panel data for 20
years (1997 to 2016) and analysed using the PPML
and Heckman selection models. Estimation results
of the analysis indicated that the 'Belt & Road'
Initiative, common official language, sharing a
common border, China's WTO membership,
country's land size, China's GDP, the real
exchange rate, and importing countries’ GDP were
the main determinants of the Chinese pork exports.
The study concludes that addressing the identified
factors affecting China's meat industry could
enhance Chinese foreign exchange earnings.
Abdushekur (2019) examined the determinants live
animal export of Ethiopia for a period from 2000
to 2017 using a gravity model. Estimation results
indicated that gross domestic product,
geographical distance, the population size of
importing countries, and the total road network of
Ethiopia were the main determinants of live animal
export of Ethiopia. On the contrary, foreign direct
investment, the real exchange rate, sharing a
common border, preferential trade, and regional
trade agreement were not significant in affecting
live animal export of Ethiopia. Similarly, in
Ethiopia, Tigrai national regional state a study by
Tekle et al. (2018) examined livestock production
in Tsegede Woreda (district) using a cross-
sectional primary data. The descriptive technique
was used to analyse data. Accordingly, the
descriptive analysis revealed that existence of large
livestock population, potential animal feed, and
proximity of the area to foreign export opportunity
(Sudan and Eritrea) as a potential opportunity of
the district to enhance its export earnings from
livestock. On the contrary, the existence of poor
livestock healthcare system, poor animal feed
quality, lack of market linkage, and poor breed
were identified major challenges of livestock
production. They conclude that livestock export
potential and the major bottlenecks of livestock
production need to be fully utilised and addressed,
respectively by prioritising policies and strategies
to enhance livestock exports and in turn
accelerated the country's economic growth.
 Abyssinia Journal of Business and Social Sciences Vol. 5, No. 1, 2020, 1-9
Using a gravity model of trade for 17 years (2000
– 2016), Sawore (2018) evaluated Ethiopia's
leather and leather products for a sample of 43
trading partners. The results of the analysis
revealed that GDP of importing partner countries,
Ethiopia's domestic infrastructure exert, and FDI
were affecting positively Ethiopia's leather and
leather products exports while geographical
distance was faceting negatively and significantly
to leather and leather products exports of Ethiopia.
Likewise, Abdalgabar et al. (2018) assessed the
factors affecting the livestock red meat exports of
Sudan using ordinary least square method of time
series, spanning from 2004 to 2015. The results of
the analysis revealed that exchange rate, livestock
feeding, livestock breeding, and experience were
the key factors affecting Sudanese livestock red
meat exports.
In Pakistan, a study by Rao et al. (2016) evaluated
the determinants of Pakistan's agricultural exports
employing a “stochastic frontier gravity model” for
20 years (1995 - 2014). The findings of the study
revealed that the tariff rate and the bilateral
exchange rate were the major determinants of
Pakistan's agricultural exports flows. Furthermore,
estimation results indicated that trading agreement,
colonial history, sharing a common border and
common culture had an impact on the agricultural
exports of Pakistan. Moreover, the estimated
technical efficiency indicated that huge potential
that Pakistan has in exports to her trading partner
countries. Similarly, in Kenya a study by Yego
(2015) examined livestock export flows of Kenya
using a gravity model for the period from 1990
to2013. The results of the analysis revealed that
Kenya's GDP and importing countries' GDP per
capita had a positive significant effect on livestock
export flows of Kenya. On the contrary, Kenya's
GDP per capita had a statistically significant
negative effect on livestock export flows of Kenya.
A study by Mengistu (2014) evaluated the factors
affecting Ethiopia's exports flows employing a
gravity model of trade for 16 years (1995 – 2010).
Estimation results revealed that Ethiopia's and
importing countries' population sizes, GDP per
capita, and GDP had a statistically significant
positive impact on export flows of Ethiopia. On the
contrary, the real exchange rate and the
geographical distance between the capitals of
economies had a negative but statistically
significant impact on export flows of the country.
Using data from the International Trade Centre
(ITC) for 11 years (2001 – 2011), Reuben et al.
(2014) evaluated the determinants of live animals
and animal products trade within the ECOWAS
sub-region. Data were analysed using a “gravity
model of trade”. The findings of the study revealed
that GDP, sharing a common border, the
geographical distance, and sharing a common
3
official language were the major factors affecting
live animals and animal products trade among
member countries ECOWAS. Likewise, Hamid et
al. (2012) assessed the factors affecting livestock
products exports of Iran using “Error Correction
Model (ECM)” with an ordinary least square
method. Estimation results revealed that climate
change, changes in the price index of export goods,
livestock added-value, and the subjective price
index of livestock products were the major
determinants of livestock products export of Iran.
It appears from the above review that studies on
export determinants are mostly based on the
overall export earnings of the agriculture sector.
Most importantly, although there have been many
studies that have examined the determinants of the
agricultural sector exports of Ethiopia, much less is
known about what factors affect livestock exports
in the context of Ethiopia. Thus, this paper
contributes to trade literature in general, Ethiopia's
trade literature in particular by examining the
major determinants of livestock exports in Ethiopia
from 2002/03 to 2018/19.
RESEARCH METHODOLOGY
Data Source and Rationale for Variables
To examine the determinants of livestock exports
of Ethiopia (live animals: cattle, sheep, & goat;
skin & hide; poultry; draught animals: camel,
donkey, horse &mule), annual data for 16 years
(2002/03 - 2018/9) was employed. The major
livestock and livestock products importing
countries from Ethiopia have been selected (see
Appendix Table B). In this study, the dependent
variable was the log value of livestock and
livestock products export earnings from country i
(Ethiopia) to its trading partner countries (j). In
econometrics, the basic problem is the choice of
independent (or explanatory) variables. The
omission of important independent variables could
result in biased and inconsistent while estimating
using econometric models (Wooldridge, 2002).
Thus, Amemiya (1980) proposed that “Selection of
regressors should be based on economic-theoretic
considerations as well as on statistical evidence”.
Thus, following these suggestions and guidelines
of Amemiya (1980), the choice of variables
depend on theories of trade and previous
researches in selecting the most important
variables to specify gravity model of trade. Thus,
to examine the major determinate factors affecting
Ethiopia's livestock exports flows, the log value of
the livestock exports earnings have been employed
as a dependent variable in the regression models.
The gross domestic products, real GDP per capita,
the real exchange rate, population size, the
geographical distance between the capitals of
economies, and sharing a common border. Data for
real GDP and total population size were obtained
 Abyssinia Journal of Business and Social Sciences Vol. 5, No. 1, 2020, 1-9
from WDI. Information on real GDP per capita
was collected from the IMF, World economic
outlook database. The geographical distance
(measured in km) was employed a proxy for
transport costs and other distance-related costs
were taken from CEPII (“Centre d'Etudes
Prospectives et d'Informations Internationales”).
Country specific variables, such as dummies for
sharing a common official language and sharing a
common border were collected from CEPII and
CIA's World Factbook, respectively. Except for
dummy variables, all the variables incorporated in
the econometrics models were the form of the
natural logarithm to analyse the determinants of
Ethiopia's livestock exports. The description of
variables and data sources have been presented in
Appendix Table A.
The Gravity Model Estimation Technique
a) The traditional gravity model: Theory-based
specifications
The “Newton's Law of Universal Gravitation”
implies that a mass of goods or other factors of
production at origin , , is attracted to a
mass of demand for the goods at destination ,
. However, the mass flow of a good is
decreased by the geographical distance between
the origin and destination , . The
gravity model is the best empirical estimation
technique in international trade (Tinbergen, 1962).
Therefore, the basic theory-based gravity model of
trade is given as follows:
Equ. 1
Where: denotes the log
value of livestock exports from country to at
time ; ( ) denotes the log
value of the gross domestic product of a country
( ) at time ; denotes the distance
between countries and at time ; represents
a constant term; , and are model
parameters.
The choice of the gravity model has been often
questioned by most researchers who dealt with the
performance of the model. The presence of “zero
flows” and heteroskedasticity in econometrics
pproaches have been the centre of critiques
(Helpman et al., 1985; Silva and Tenreyro, 2006).
Therefore, Silva & Tenreyro (2006) discussed the
econometrics techniques used in the gravity model
4
estimation that could lead to biased and
inconsistent estimates. In the presence of
heteroscedasticity, the authors recommend using
log-linear econometrics technique to overcome the
consequence of inconsistent and biased estimates
of the actual elasticities. Contrarily, various
econometrics approaches can be used to solve the
presence of “zero flows”. Some researchers
propose to drop the “zero flows” from the
estimation sample (Linneman, 1966) or to add a
constant term to all bilateral trade flows while
estimating the log-linear regression model (Rose,
2004). Despite the arguments and existence of
wide-ranging estimation models such as Heckman
selection (Gomez-Herrera, 2013), ordinary least
square estimators (OLS) (Head and Mayer, 2014),
Tobit estimation technique (Martin and Pham,
2008), etc. empirical evidence indicates that there
is no single definite best-performing estimation
technique. Thus, the choice of the estimation
technique should take into considerations both the
theory of economic and econometrics (Linders and
De Groot, 2006). Following the work of this study
employed mainly the
“Poisson-Pseudo-Maximum-Likelihood, PPML”
estimation technique. In the presence of a small
zero flow values, the PPML is the best performing
regression model for gravity model estimation
(Martin & Pham, 2008). The gravity model can be
estimated by applying OLS (Head and Mayer,
2014). Thus, this study also employed the ordinary
least square estimator as a robustness check of the
findings.
b) The Poisson Pseudo Maximum Likelihood
(PPML) Estimator
In the presence of “zero flows” in the estimation
sample and heteroscedasticity, estimation of the
gravity model using a comprehensive econometrics
technique could result in unbiased and also
consistent estimates (Silva and Tenreyro, 2006;
2011). Accordingly, the PPML estimation
technique is a good estimator for empirical gravity
model of trade analysis. The PPML estimation
technique applied to the gravity model is expressed
in a multiplicative form that accounts for
heteroscedasticity (Santos Silva and Tenreyro,
2006). Furthermore, it can also resolve the data
contained in the “zero flows”. Moreover, the
PPML estimation technique ensures that the
gravity fixed effects are alike to their
corresponding structural terms due to its additive
property (Arvis and Shepherd, 2013; Fally, 2015).
Thus, the gravity model specification (Equ. 1) that
accounts for the full set of exporter and importer
time fixed effects, can be formulated in
multiplicative form and recomputed by the PPML
estimator as follows:
 Abyssinia Journal of Business and Social Sciences Vol. 5, No. 1, 2020, 1-9

Where: 〖lnLstock〗_(i,t)denotes the log value of Thus, Equ.3 is the econometric model specification
Ethiopia's livestock exports earnings from Ethiopia of the gravity model of trade using an ordinary
(i) to the partner countries (j) at time t. least square technique with natural logarithm
ln〖GDP〗_(EXP,t) & ln〖GDP〗_IMP,t are the values of the variables. Regression estimation was
log of the GDP of Ethiopia and its importing made using a STATA software package version 14.
partner countries (j), respectively. RESULTS AND DISCUSSIONS
ln〖Pop〗_(EXP,t)& ln〖Pop〗_(IMP,t) denote
Empirical Results
the population size of Ethiopia and its trading
partners at time t, respectively. ln〖Dist〗_(EXP- This study examined the determinants of livestock
IMP) represents the log of the value of the exports of Ethiopia with annual data for 17 countries
geographical distance between Ethiopia's capital, for 16 years (2002/03 - 2018/19) using a gravity
Addis Ababa and its importing partner countries' model of trade with the PPML and OLS estimation
techniques. Table 2 presents the empirical findings of
capitals (j). ln〖EXCH〗_(EXP-IMP,t) represents the PPML and OLS regression estimates persistent
the log of the value of the exchange rate of with the theoretical framework. The second and
Ethiopia (i) and its trading partner countries (j). fourth columns of the table provide the coefficient
D〖Bord〗_(EXP-IMP) represents a dummy estimates of the PPML and the OLS estimators along
variable with a value of 1 if Ethiopia (i) sharing a with their standard error in parenthesis, respectively.
common physical land border with its importing The magnitude effects of the OLS estimates are small
partner countries (j); & 0 otherwise. for the variables under analysis, compared to the
D〖Lang〗_(EXP-IMP) denotes a dummy PPML regression estimates.
variable with a value of 1 for the use of a common Estimation results revealed that the estimated
official language between Ethiopia and its coefficient of the real GDP was positive and
importing partner countries; & 0 otherwise. statistically significant using both the PPML and OLS
D〖Lock〗_EXP and D〖Lock〗_IMP represent estimators. Moreover, the regression analysis
a dummy variable that takes a value of 1 if indicated that the magnitude of the log value of real
importing partner countries don't have direct GDP for the exporting country (Ethiopia) was
access to the sea (or port); & 0 otherwise. positive and higher than the log value of real GDP for
π_(EXP,t)denotes the exporter time fixed effects importing countries. Hence, the results indicated that
that will account for the outward multilateral a 1 percent increase in the log value of real GDP of
resistances and  _(IMP,t)represents the importer Ethiopia increases livestock exports flows by 66.25
time fixed effects that capture the inward percent. Similarly, a 1 percent increase in the log value
of real GDP of importing countries increases livestock
multilateral resistances. The subscript '"j' exports flows by 27.47 percent using the PPML
("=1,…17) represents the importing countries and regression estimates, controlling all other variables in
the subscript 't' (t=2002/03,….2018/19) annual the regression model.
series (years). 'n' stand for the natural logarithms.
Table 1: Results of the PPML and OLS Regressions Estimates
c) Ordinary Least Square Estimator Variables PPML P-value OLS P-value
.6625***(.1152) 0.000 .2859***(.0616) 0.000
As a robustness check of the findings from the ***
.2747 (.0698) 0.000 *
.1492 (.0561) 0.010
PPML, the gravity model can be estimated by **
.0807 (.0356) 0.027 **
.0721 (.0289) 0.017
*** ***
applying the ordinary least square method (Head .2269 (.0761) 0.004 1.5216 (.4775) 0.002
-.2466 (.9949) 0.805 -.40481 (.2891) 0.166
&Mayer, 2014). The traditional gravity model .08485**(.0394) 0.035 .5272*** (.1031) 0.000
specification (Equ.1) can be formulated to account **
-.0773 (.0299) 0.012 -.1649*** (.0542) 0.003
for the multilateral resistances with an appropriate .2403*** (.0601) 0.000 .2726*** (.0696) 0.000
set of the exporter and importer-time fixed effects. .1191 (.3136) 0.705 .0323 (.0240) 0.183
-.0005 (.0013) 0.722 -.0206 (.0187) 0.276
Therefore, the theory-based gravity model -.2377 (.3214) 0.462 -.0004 (.0017) 0.830
specification using ordinary least square estimator -.1037 (.2258) 0.648 -.0297 (.0238) 0.217
is given as follows: _cons -.2073 (.0338) 0.000 -.4789 (.1024) 0.000
No. of Obs. 272 272
, = + , + , No. of parameter 13
+ + , − 0.3172 0.2286
+ , + , Exporter-time-fixed effects Yes No
+ + , Importer-time-fixed effects Yes No
+ , + RESET t-test (P-value) 0.462 0.000
+ + Source: Authors' computation
*** ** *
+ , .3 Note: Standard errors are in parentheses. p<0.01, p<0.05, and p<0.1
5
 Abyssinia Journal of Business and Social Sciences Vol. 5, No. 1, 2020, 1-9
Looking at the real GDP per capita, the findings of
the PPML regression analysis confirm the positive
and significant effect of the log value of the real
GDP per capita income of exporting and importing
countries on the livestock export flows.
Accordingly, estimation results revealed that a 1
percent increase in the log value of the real GDP
per capita of Ethiopia increases livestock exports
flows by 8.07 percent while keeping all other
determinants constant. Similarly, the findings of
the analysis indicated that a 1 percent increase in
the log value of the real GDP per capita of
importing countries increases livestock exports
flows by 22.69 percent while other variables in the
model remain constant.
The estimation results further indicated that
transport costs and other related costs which use
the geographical distance as a proxy had a
significant and negative impact on livestock
exports. Thus, the statistically significant negative
coefficient of the geographical distance between
capitals of economies revealed that a 1 percent
increase in the geographical distance decreases
livestock exports flows by 7.73 percent while
holding constant for a multitude of other
determinants in the model. This indicates that
livestock exports related transport costs had a
substantial impact on livestock exports flows of the
country. Moreover, the estimated coefficient of the
real exchange rate exhibited the expected sign.
Thus, the results of the analysis indicated that a 1
percent increase (devaluation of Ethiopian Birr) in
the real exchange rate may enhance Ethiopia's
livestock exports by 24.03 percent while
controlling the effects of all other determinants
constant (see Table 1).
Turning to the population size impact of the
livestock export flows, estimation results indicated
that the population size of importing countries had
a statistically significant positive impact on the
exporting country's livestock exports flows. Thus,
a 1 percent rise in the population of importing
countries may increase Ethiopia's (exporting
country) livestock exports by 8.5 percent while
holding other determinants fixed in the model. A
similar result except for the magnitude of the effect
was reported by the OLS regression estimates (5.3
percent) while holding other determinants
constant.
DISCUSSION
The purpose of this study is to examine the
determinants of Ethiopian livestock exports using a
gravity model of trade for 16 years (2002/03–
2018/19). Despite its great potential in agriculture
in general and in livestock population size in
particular, Ethiopia remains a country with low
agricultural commodities and livestock exports
earnings. The findings of the analysis revealed that
6
real GDP, real GDP per capita, population size, the
geographical distance, and real exchange rate were
the major gravity factors affecting livestock
exports of Ethiopia. As expected, the effect of the
log value of the real GDP on livestock exports was
statistically significant with a positive sign. This
result of this study is consistent with the findings
of other studies (Abdushekur, 2019; Saleh et al.,
2019; Abdalgabar et al., 2018; Sawore, 2018;
Braha et al., 2017; Yego, 2015; Mengistu, 2014;
Reuben et al., 2014).
Gross domestic product was employed as a proxy
for the market size of a country and it was assumed
to improve trade flows if the trading countries are
similar in market size. For instance, if a country's
GDP volume is small, it is less likely to be a
potential exporter as there is not enough domestic
production to satisfy the need to export. Ethiopia's
market size reflects exports' capacity of livestock
while importing country's market size shows the
demand for livestock and livestock products
exports of Ethiopia. If the value of the real GDP of
the exporting country (Ethiopia) is higher than the
value of the real GDP of importing countries, then
Ethiopia may have a home effect and a net
exporter. Similarly, estimation results revealed that
the log value of the real GDP per capita of
exporting and importing countries had a negative
and significant effect on livestock exports. This
study's finding is consistent with previous
empirical studies (Yego, 2015; Mengistu, 2014).
The population size of the economies was
employed in this present study to account for the
market size of importing and exporting countries.
Thus, the findings of the analysis indicated that the
log value of the population size of the importing
countries had a statistically significant positive
effect on livestock exports of Ethiopia. In
comparison, the findings of this study are
inconsistent with other countries' previous studies
(Abdushekur, 2019; Braha et al., 2017; Mengistu,
2014). Venables (1987) and Krugman (1980)
showed that countries with larger market size
could significantly absorb huge imports than
countries with smaller market size of and are better
able to experience economies of scale. Moreover,
the larger countries develop a comparative
advantage in their export industries than are
smaller countries. Thus, an increase in population
size of importing countries could provide high
demand for livestock and livestock products of
exporting country (Ethiopia). Likewise, estimation
results revealed that the geographical distance
between capitals of economies was an important
determinant of livestock export flows of Ethiopia.
The results of this study indicated that the log
value of the geographical distance had a negative
and significant impact on livestock exports flows.
This study's findings are consistent with previous
 Abyssinia Journal of Business and Social Sciences Vol. 5, No. 1, 2020, 1-9
empirical studies (Abdushekur, 2019; Mengistu,
2014; Reuben et al., 2014). Thus, an increasing
geographical distance between capitals of
economies could significantly reduce livestock
exports flows of Ethiopia, the further the trade
partner is more trade barriers and transport-
related-costs it faces and the less trade on livestock
exports occurs.
The real exchange rate was among the major
determinants of the Ethiopian livestock export.
Results revealed that the log value of the real
exchange rate affected positively the Ethiopian
livestock exports flows. This study's empirical
results are consistent with theory as well as
empirical evidence found in other studies (Saleh et
al., 2019; Abdalgabar et al., 2018; Braha et al.,
2017; Rao et al., 2016; Mengistu, 2014). The
positive coefficient of the real exchange rate
indicates that devaluation of the Ethiopian
currency (Birr) against its importing partner
countries' currencies could facilitate livestock
exports flows. Thus, an increase in the real
exchange rate would devaluate the Ethiopian
currency, hence livestock exports would be
cheaper because the devaluing the domestic
currency may increase livestock export flows of
Ethiopia.
CONCLUSION AND RECOMMENDATIONS
The purpose of this study is to examine the
determinants of the Ethiopian livestock exports
under the panel gravity model of trade for 16 years
(2002/03–2018/19) using the
Poisson-Pseudo-Maximum-Likelihood and
ordinary least square estimators with major trading
partner countries. The estimates from PPML
indicates that Ethiopia's livestock exports follow
the theory-based gravity pattern. The larger value
of the real GDP of Ethiopia as compared to
importing countries' real GDP confirms the
existence of home effect for net exports for
livestock and livestock products of Ethiopia. The
major results of the analysis indicated that
livestock export flows of Ethiopia may increase
with increasing real GDP (economic size), real
GDP per capita, and importing countries'
population size, revealing the higher impact of
importer's absorbing potential compare to
Ethiopia's livestock export potential. Furthermore,
the positive coefficient of the real exchange rate
indicates that devaluation of the Ethiopian
currency (Birr) against its trading partner countries'
currencies could facilitate livestock exports. Thus,
an increase in the real exchange rate would
devaluate the Ethiopian currency, hence livestock
exports would be cheaper because the devaluation
of the domestic currency increases livestock export
flows of Ethiopia. On the other hand, consistent
with other previous studies, estimation results
indicated that the geographical distance between
7
capitals of economies was the most significant
factors, which affects negatively livestock exports
flows of Ethiopia.
This study suggests that the Ethiopian government
should have a platform of livestock export
promotion that should aim market diversification
in those countries in which Ethiopia can exploit its
comparative advantage. Moreover, the optimal
devaluation of the real exchange rate may help in
enhancing exports' revenues from livestock exports
and hence, the devaluation policy of the country
need to be reassessed to significantly enhance
livestock exports' revenues.
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 Abyssinia Journal of Business and Social Sciences Vol. 5, No. 1, 2020, 1-9

Appendix
Appendix Table A: Definition of variables and data sources

Variables Description Expected sign Data source

, The log of the value of livestock exports of NBE
(dependent) Ethiopia ( ) to its importing partner countries ( ) at
time in USD.
, The log value of real GDP of Ethiopia ( ) in USD + WDI *
, The log value of real GDP of Ethiopia's trading + WDI *
partner countries ( ) at time . in USD
, The log value of real GDP per capita of Ethiopia + WDI **
( ) at time in USD.
, The value of real GDP per capita of trading + WDI **
partner countries ( ) at time in USD.
, The ratio of Ethiopian Birr per USD ( ) to its + WDI *
trading partner countries' currency per USD (based
on Purchasing Power Parity) ( )
The log value of the bilateral distance between _ https://www.timeanddate.com/
Ethiopia ( ) and its trading partner countries'
capitals ( ) in kilometre
A dummy variable with a value of 1 if exporter + CIA's World Factbook
and importer countries share a common land
border; 0 otherwise
, The population size Ethiopia and its trading + WDI *
partners at time .
A dummy variable that takes value 1 if exporter + Ginsburgh, Melitz, and
and importer countries share an official language; Toubal (2019)
0 otherwise
A dummy variable that takes a value of 1 if _ World Atlas Website
partner countries don't have a direct access to the
sea port; 0 otherwise
Source: Authors' compilation; Note: WDI* = “World Development Indicators of the World Bank”,
CEPII = “Centre d'Etudes Prospectives et d'Informations Internationales”, Paris (http:// www.cepii.fr); NBE = National
Bank of Ethiopia

Appendix Table B: List of livestock and livestock products importing countries

Western Europe Middle East & North Africa Sub-Saharan Africa

Germany Egypt Bahrain Djibouti

Switzerland Israel Oman Sudan

Netherlands Jordan Qatar

Italy Libya Lebanon East Asia & the pacific

Yemen Saudi Arabia China

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