Economics

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Browsing Economics by Subject "A vector Autoregressive Analysis.""

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    Fiscal Aggregates, Aid and Growth in Ethiopia: A Vector Autoregressive Analysis.
    (A.A.U, 2007-03) Mesfin, Gulilat; Hasan, Syed (Dr)
    Like any other developing countries, aid can affect economic growth of Ethiopia, such as through its impact on government behavior, investment and saving. Government expenditure can also raise growth by increasing the general level of economic activity. As much of aid is given to the government, its effect on growth and poverty reduction is likely to be properly mediated by government fiscal policy that makes the analysis of fiscal impact of aid and its relation ships with growth more interesting. The main objective of this study is to examine the fiscal impact of aid and its relationships with growth in Ethiopia using annual time series data over the period 1960/61-2004/05. Multivariate cointegration and vector error correction model (VECM) are estimated to establish the short and long run relationship between foreign a id, fiscal aggregates and economic growth. The main findings show that foreign aid (both grant and loan) has significant positive impact on long-run growth of output and expenditure. Government expenditure is also found to have a positive long-run influence on growth, and there is no evidence that shows tax revenue retards growth in Ethiopia. Although both grants and loans have positive long-run influence on growth, the policy implication is that foreign aid to Ethiopia could better if given in the form of grants and associated with fiscal discipline because foreign aid which comes in the form of loan may be transferred to debt burden problem as country's debt stock has accumulated to unsustainable level.