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Title: THE IMPACT OF FOREIGN AID ON ECONOMIC GROWTH IN ETHIOPIA: ACCOUNTING FOR TRANSMISSION MECHANISMS
Authors: YOHANNES, BIRARA
Advisors: Dr. Girma Esthepanos
Keywords: economics
Copyright: May-2011
Date Added: 28-Jul-2012
Publisher: AAU
Abstract: Developing countries in general and Ethiopia in particular has been experiencing huge amount of saving gap, trade gap and fiscal gap for more than four decades. Consequently, there has been a significant net inflow of official development assistance (foreign aid). Therefore, the main objective of the study is to examine the impact of foreign aid on economic growth and the transmission mechanisms (i.e. investment, import and government consumption expenditure) of Ethiopia using Johansson maximum likelihood approach over the period of 1970/1 to 2008/9. The co integration test result indicates the existence of long run relationship among the variables entered in all models. In the long run foreign aid has a positive and significant impact on growth through its significant contribution to investment and import. However, the dynamic short run model points out that aid to have a significant impact on growth it has to be assisted by good monetary, fiscal and trade policy. In addition, in the short run aid has significant impact on government consumption expenditure, which confirms the existence of aid fungibility. The study also confirms the existence of debt overhang problem in the Ethiopian economy. Generally, the theoretical view of the gap models is proven in this study. Aid can enhance growth by financing the three gaps. However to mitigate the problems with aid fungibility and debt overhang problem, foreign aid has to be linked to a good policy framework.
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 Economics
URI: http://hdl.handle.net/123456789/3510
Appears in:Thesis - Economics

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