The role of trade policy on Ethiopia’s leather industry: effect of export tax on competitiveness

Abstract

The government of Ethiopia implemented a 150 percent export tax on raw hides and skin and semi-finished leather products and crust leather in 2008 and 2012 respectively, in order to encourage leather manufacturing industry. The objective of this paper is to analyse the effect of export tax on Ethiopia’s leather industry export competitiveness. Constant Market Share (CMS) model has been used to evaluate Ethiopian’s performance in leather product trade. Export value data in 2007 was used as a base year, whereas data in 2013 was considered as a year after export tax. The results indicated that, implementation of export tax shifted the export of hides and skins and unfinished leather product to finished leather product. Besides the shift in export products from raw materials to finished leather product, implementation of export tax has also resulted in positive export growth (2.55. this indicate that,the country’s leather product export growth was higher than world demand after implementation of export tax; which is most likely achieved by an increase in export competitiveness of the leather industry (2.25).