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Please use this identifier to cite or link to this item: http://hdl.handle.net/123456789/907

Title: THE IMPACT OF GOVERNMENT SPENDING ON ECONOMIC GROWTH: THE CASE OF ETHIOPIA
Authors: Teshome, Ketema
Advisors: Professor Teshome Mulat
Copyright: 2006
Date Added: 23-Apr-2008
Publisher: Addis Ababa University
Abstract: ABSTRACT The objective of this paper is to analyze the impact of government spending on economic growth in Ethiopia. Since the link between government spending and economic growth is complex, both analytical (qualitative) explanations and econometric analysis are used in the study. The descriptive and qualitative analysis of the study investigates that the limited revenue buoyancy, unreliable source of financing, imprudent fiscal policy (particularly in the derg regime) and capacity deficiency have limited the role of government expenditure, as fiscal instrument, in stimulating economic growth. Although the rate of growth of expenditure as a ratio of GDP has been increasing consistently over time, its absolute per capita magnitude is too low, even compared to Sub-Saharan African countries. Thus, there is a need to increase government expenditure and to effectively and efficiently utilizing it in a way it induce faster economic growth. The need for increasing government expenditure is also evident in an effort towards achieving the Millennium Development Goals (MDGs). This calls for, in general, non destortionary and reliable source of revenue, capacity building, and restraining expenditure that can be efficiently provided by private sector. In the econometric analysis effort has been made to see the impact of various components of government spending (investment, consumption and human capital expenditures) on the growth of real GDP for the period 1960/61-2003/04 using Johanson Maximum Likelihood Estimation procedure. It is found that only expenditure on human capital have long-run significant positive impact. Investment (productive) government spending displays a negative but insignificant impact on growth of real GDP, which again reveals the inefficiency and poor quality nature of public investment. In the short run, all components of government expenditure do not have significant meaning in explaining economic growth.
Description: A THESIS SUBMITTED TO THE SCHOOL OF GRADUATE STUDIES OF ADDIS ABABA UNIVERSITY IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTERS OF SCIENCE IN ECONOMICS (ECONOMIC POLICY ANALYSIS)
URI: http://hdl.handle.net/123456789/907
Appears in:Thesis - Economics

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