“This study is aimed at predicting the trade potentials of Ethiopia in the Intergovernmental Authority on Development (IGAD) block using augmented gravity model. Both the Fixed Effect Model (FEM) and Random Effect Model (REM) are estimated and tested for specification to choose the best model that fits the data. According to the test, the Fixed Effect Model (FEM) is found to be the preferred model. The explanatory variables of the model are found to turn up with the expected signs and are statistically significant except the per capita income difference (PCDIFF) and real bilateral exchange rate (RBER) variables. For the prediction of the trade potentials of Ethiopia among IGAD member states, the
coefficients of the preferred FEM were used. According to the finding, Ethiopia’s trading potential with IGAD member states in the sample appeared to have exhausted except with Uganda. An in‐depth examination as to why the three countries are over and Uganda is under trading relative to the predicted trade value should be undertaken. The recommendation underscores the importance of joining IGAD FTA as a stepping stone for the wider FTAs such as the COMESA and the
COMESA‐EAC‐SADC Tripartite FTA.”
