The Role of Artificial Intelligence in Digital Trade and Its Impact on Economic Growth in Ethiopia: An Empirical Time Series Analysis

ABSTRACT: This study investigates the role of artificial intelligence (AI) in facilitating digital trade and its impact on economic growth in Ethiopia through an empirical time series analysis. Leveraging data from 1992 to 2023 and employing a Vector Error Correction Model (VECM), the research examines the dynamic relationships between GDP growth and key determinants of digital trade, including internet penetration, ICT infrastructure, digital trade activity, and the trade index. The findings reveal a significant long-term relationship between GDP growth and these determinants, with internet penetration and ICT infrastructure playing pivotal roles in fostering economic development. Additionally, the trade index and digital trade activity are identified as critical in advancing Ethiopia's integration into the global digital economy. The study highlights the transformative potential of AI in digital trade by improving efficiency, accessibility, and market competitiveness. However, it identifies gaps in Ethiopia's adoption of AI, which limits the country's ability to fully capitalize on digital trade opportunities. By offering actionable recommendations for policymakers, this research underscores the need for strategic investments in AI and ICT infrastructure to harness the benefits of digital trade. Such efforts are crucial for driving sustainable economic growth and positioning Ethiopia as a competitive player in the global digital economy.