Applied Economic Modeling And Forecasting With (Financial Policy Analysis and Management)

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The Impact of Government Sectoral Expenditure on Economic Growth in Ethiopia: With a Particular focus on Agriculture, Defense, Education and Health Sectors
(Addis Ababa University, 2014-06) Berihun, Bazezew; Mekonnen, Alemu (PhD)
This paper investigates the growth impact of government sectoral expenditure in Ethiopia over the period from 1975 to 2013, with a particular focus on sectoral expenditures on education, health, agriculture and defense, by estimating a multivariate co-integration and error correction model to examine the marginal effect of expenditure on each sector on economic growth. The study finds that government spending on education has a positive impact on economic growth in the long-run but an insignificant impact in the short-run. Spending on defense has a negative and significant impact on economic growth both in the long-run and in the short-run. Government spending on agriculture is negatively correlated to growth in the long-run but is insignificant in the short-run. Spending on health and the effect of consumer price index is found to be insignificant both in the long-run and the short-run. Thus, the results suggest that the allocation of government expenditure towards the education sector should be favored in order to enhance sustainable economic growth