Browsing by Author "Girma Tewodros"

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    Predictability of Foreign Aid and Economic Growth in Ethiopia
    (Addis Ababa University, 2016-06) Girma Tewodros; Geda Alemayehu
    Foreign aid is one source of physical capital accumulation in Ethiopia. It is also a main media of government revenue in meeting increasing trends of government expenditure. To investigate the impact of foreign aid flow on economic growth, various empirical studies were conducted, but they came up with mixed result. This leads to raise question of why impact of aid on economic growth in Ethiopia continues to be paradoxical in its findings. To assess the effectiveness of foreign aid in Ethiopia; this study sets predictability of foreign aid and economic growth in Ethiopia as a general objective. Specifically, the study sought to examine the contribution of foreign aid and the macroeconomic policy environment to economic growth in the country. In order to meet the aforementioned objective, the study employed an autoregressive distributed lag (ARDL) approach over the period 1981-2014. The empirical finding shows that in the long run, foreign aid has a positive contribution to economic growth, but in the short run its effect appeared to be insignificant. The predictability of foreign aid has a positive effect both in the short and long run. Macroeconomic policy index also has a positive effect in the long run, but its short run effect become negative. Based on the listed empirical finding, the study came up with policy ecommendation; the government should allocate the external assistance on the successful development projects. Moreover, to make the flow of aid more predictable and persistent over time, both the government of Ethiopia and the donor communities should come up mechanism of transparently working jointly.