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Please use this identifier to cite or link to this item: http://hdl.handle.net/123456789/3202

Advisors: Dr. Gebrehiwot Ageba
Keywords: Real effective exchange rate, economic growth.
Copyright: Feb-2011
Date Added: 26-Jun-2012
Publisher: AAU
Abstract: This study analyzes the impact of real effective exchange rate on the Ethiopian economy using annual time series data for the period 1970-2009. With the help of cointegration and vector error correction analysis, the impact of real effective exchange rate on real gross domestic product growth was assessed in the long-run as well as in the short-run. The study found that the impact of real effective exchange rate on economic growth works through the aggregate demand channel in the short-run and the aggregate supply channel in the long-run i.e. decrease/depreciation in the value of the domestic currency promotes economic growth only in the short-run. In the long-run, it discourages economic growth. The study also found that the government, through its spending, may play a key role in bringing about economic growth in Ethiopia. Government expenditure is found to be equally statistically significant to real effective exchange rate in explaining economic growth in Ethiopia. Other variables like real interest rate and real exchange rate premium are also found to be statistically significant with the expected sign in explaining economic growth in the long-run. The study confirms that the country is on the right truck to go for a long-term economic growth as the [appreciation of] real effective exchange rate and [increase in] public expenditure are the most important tools of economic growth in the hand of the government. With the use of at least these two tools, the government may play a key role in transforming the agrarian economy.
Description: A Thesis Submitted to the School of Graduate Studies of Addis Ababa University in Partial Fulfillment of the Requirements for the Degree of Masters of Science in Economic
URI: http://hdl.handle.net/123456789/3202
Appears in:Thesis - Economics

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