International Economics

Permanent URI for this collection

http://etd.aau.edu.et/handle/12345678/170

Browse

Browsing International Economics by Author "Alazar, Mehret"

Now showing 1 - 1 of 1
  • No Thumbnail Available
    Item
    The Determinants of Current Account in Ethiopia: Empirical Investigation
    (A.A.U, 2006-07) Alazar, Mehret; Rao, J. Manohar (Dr)
    This study analyzes the role of fundamental macroeconomic variables in explaining the movements of the current account balance in Ethiopia. The descriptive analysis on the developments of current account balance using the three relationships: external trade, income-absorption and saving-investment in the period 1960/61 - 2002/03 indicates that: (i) Poor export performance due to dependence on primary commodities with unmatched rate of growth with imports is the main reason for the persistence current account deficit; (ii) The increase in budget deficit in addition to the low level of saving is the reason indicated for persistence of current account deficit by saving - investment balance; (iii) Huge military expenditure during the degree régime and 1998 20000 and increase in government expenditure as a result of increase government involvement in the derge regime are implicated for the persistence current account deficit in the income - absorption balance. The estimated model using Johannes’s likelihood ratio test for cointegration indicates that young dependency ratio, openness, financial deepening, terms of trade and real exchange rare affect current account both in the long run and short run; budget balance, parallel marker premium and ODA affect current account only in the long run and domestic output growth rate affect current account in the short run. The policy implication of the findings is that diversifying exports, reducing budget deficit and controlling distortionary policies of exchange rate.