South-South Versus North- South Trade Linkages: A Case Study of Ethiopia and Implications For the Country’s Industrial Development

Abstract

This article examines Ethiopia’s trade with the North versus the South and uses the trade patterns that emerge to derive policy implications for the country’s industrial development. Descriptive statistics in the form of tables and figures are used to reflect the emerging trade patterns. Grubel-Lloyd intra-industry trade indices are calculated for high technology manufactured goods so as to examine intra-industry trade opportunities between Ethiopia and its major trading partners. The Heckscher-Ohlin model, post- Heckscher-Ohlin models, as well as, tariff and non-tariff barriers currently in place are used to try and explain the trade patterns that emerge. The research finds that Ethiopia trades relatively more intensively with Asia and the Middle East than with countries in the North, thus depicting a “look East strategy”. This is despite both the EU and the USA levying much lower applied tariffs on most of Ethiopia’s exports. The geographical nearness of Asian and Middle East markets makes them more attractive, whilst non-tariff barriers like phytosanitary regulations, packaging and quality standards in markets in the North and the geographic distance make Ethiopia’s exports less competitive. Ethiopia’s intra-industry trade opportunities in high technology products lie mainly with countries in the North, especially Italy. Pursuing such trade opportunities with countries with well developed industrial bases would help Ethiopia to build a stronger manufacturing sector through an interchange of knowledge, skills and advanced up-to-date technology.

Keywords: South-South trade; intra-industry trade; applied tariffs