Exchange Rate Liberalization and Export Competitiveness: Evidence from Ethiopia’s 2024 FX Reform

Ethiopia’s 2024 foreign exchange (FX) liberalization, enacted through National Bank of Ethiopia (NBE) Directive FXD/01/2024, represented a decisive policy shift from a heavily managed exchange rate regime toward a managed float. The reform aimed to restore price competitiveness and incentivize formal trade by achieving a market-determined exchange rate and improving foreign exchange access.This study employs Revealed Comparative Advantage (RCA) and the Herfindahl-Hirschman Index (HHI) to assess the reform’s impact. Results indicate rapid policy success: the official–parallel market premium narrowed to under 10 percent (World Bank, 2024), while aggregate export revenue surged by 117 percent year-on-year in the first quarter of the 2025/26 fiscal year (MoTRI, 2025). RCA analysis (2018–2024) highlights the dominance of primary commodities such as coffee (RCA = 141.63) and live trees/flowers (RCA = 85.64). Post-reform data reveal significant spikes in knitted apparel (RCA = 4.61) and non-knitted apparel (RCA = 4.11), reversing years of decline.Despite these gains, growth remains asymmetrical and driven largely by the formalization of illicit gold trade (735.2% growth). This commodity dependence increases short-term export concentration (HHI) and raises Dutch Disease risks. The findings suggest that while FX liberalization achieved stabilization objectives, it is insufficient to drive sustainable, diversified export-led growth. Structural barriers including high logistics costs and low domestic demand sophistication remain binding constraints.