With the export promotion strategy, Ethiopia has tried to increase export earnings by exporting more in terms of volume and number of commodities. It has also formulated different strategies and undertaken various policy changes. Among such changes is the commitment to trade integration as revealed in existing trade negotiations. The export basket is dominated by coffee, but its share is shrinking because there are a few other new export items entering the exports basket, such as cut flowers, textile products and some processed goods. While Gravity Model is widely used to identify the determinants of trade, it is wise to employ product-destination descriptive matrix to analyze export diversification and identify the relevant factors that practically influence Ethiopia’s export performance. Based on the analysis for Ethiopia, the top 20 export commodities are contributing more than 80% of export earnings, but the performance of the new export items such as textile and textile articles is promising. Among the fastest growing exports, most of them are value added products such as vehicle parts, and the respective export earnings have grown by multiple times in 2013 compared to the value in 2004. At HS 6-digit level, among 316 New Products to Old Destinations (NPOD), 84 are from textile and textile articles and, though the values per each export are low, there are also 74 new exports in vehicles, aircraft, vessels and associated transport equipment. The major destinations of these dynamic products are the EU, North America, China, Middle East, Africa, and India. Thus, the major factors that play a pivotal role in the export performance and diversification in Ethiopia are institutional and structural changes, trade facilitation and export priority, infrastructure improvements, foreign firm participation, trade promotion and preferential market access, stretched objectives and declining bilateral trade costs.
