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Please use this identifier to cite or link to this item: http://hdl.handle.net/123456789/1040

Authors: Gebreegziabher, Tesfamariam
Advisors: Dr. Girma Estiphanos
Keywords: determination of current account
inter-temporal substitution effect
consumption smoothing effect
co-integration analysis
error correction method
Copyright: 2003
Date Added: 11-May-2008
Publisher: Addis Ababa University
Abstract: This study analyzes the role of fundamental macroeconomic variables in explaining the movements of the current account balance in Ethiopia and describes the trends and profiles of the current account balance and its major components in three different regimes using data covering the period 1961/62-1999/00. Current account in Ethiopia had been in a persistent deficit due to the poor performance of exports to finance the growing import bills. In estimating the model, the ADF tests for unit root show that all the variables are integrated of order one. The Johansen’s likelihood ratio test for co-integration indicates that there is one co-integration vector. The test for weak exogeneity also suggests that all the explanatory variables except capital flow are weakly exogenous, while the exogeneity test for current account balance is strongly rejected. The empirical results reveal that budget balance, broad money, relative income and terms of trade affect the current account balance significantly both in the long run and in the short run, while the effects of dependency ratio and openness are significant only in the short run. The policy implication of the findings is that reducing budget deficit, controlling monetary expansion, controlling birth rate (through family planning), achieving overall economic development, improving the diversity and quality of exports and liberalizing external trade will eliminate the persistent deficits of the Ethiopian current account balance.
Description: A thesis Submitted to the School of Graduate Studies of Addis Ababa University In partial Fulfillment of the Requirements for the Degree of Master of Science in Economic Policy Analysis
URI: http://hdl.handle.net/123456789/1040
Appears in:Thesis - Economics

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