Development Economics
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Browsing Development Economics by Subject "Ethiopia"
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Item Economic Implication of Military Expenditure on Economic Growth: Evidence from Ethiopia(Addis Ababa University, 2019-06) Naol, Kebede; Zerayehu, Sime (PhD)This study was carried out to empirically examine the policy implication of military expenditure on economic growth in Ethiopia. Although national defense is an important function of government and security from external and internal threats that contributes to economic development, high military expenditures for defense or civil conflicts burden the economy and may impede growth. Thus, the paper was aimed at investigate the empirical economic implication of military expenditure on economic growth of Ethiopia and the paper also examined moderating effects of inflation and unemployment on the relationship between military expenditure and economic growth. The research employed secondary data for the period 1974/5-2017/18. In analyzing the long run and short run relationship between military expenditure and economic growth, Johansen’s co-integration test, VECM, and Granger causality test was applied. Further, forecast Error Variance Decomposition was obtained using the cholesky decomposition of the VECM and used the generalized impulse response function. The study found that military expenditure affect economic growth negatively. The finding showed that there was a unidirectional causality running from economic growth to military expenditure in the long run. From the empirical finding, impulse response function suggested that military expenditure negatively impacts economic growth and Variance Decomposition also revealed that military expenditure has no important impact on future growth rate of output in Ethiopia. The empirical finding also found out that inflation and unemployment have significant moderating effects on the relationship between military expenditure and economic growth in the long run. Finally, this study recommends policy makers to consider the effects of military expenditure and spend more resources on productivity, which is growth enhancing, reducing unemployment, stabilizing inflation as well as foreign exchange market.Item Explaining Ethiopia's Foreign Trade Potential: A Dynamic Gravity Approach(Addis Ababa University, 2011-06) Gebrehiwot, Gebreyessus; Geda, Alemayehu (PhD)Towards improvement of Ethiopia's poor performance in the global trading system, the main objective of this paper is to estimate trade potential of the country with major trade partners around the world. The gravity model of trade has been duly employed for the purpose. For the sake of plausible results, recent innovations of the gravity model are incorporated as well. Specifically, a dynamic gravity approach based on a panel dataset of sample countries was estimated by System GMM estimators to first analyze the pattern of (basic vs export) trade flows. The coefficients obtained are then used to predict the basic trade and export trade potentials for Ethiopia. As a result, we found that the dynamic gravity model fits the data well, indicating the presence of hysteresis in trade. Besides, the traditional gravity variables are all significant with anticipated signs. The last major finding of the study is that considerable part of the country's potential trade has remained unrealized. The magnitude of trade potential was found the highest with Asian, European and then African countries as a continent. The study recommends that export diversification which advances the narrow export dependency, improvement of infrastructure which reduces transaction costs, and bilateral trade negotiations stepping up the current status of the external sector are the necessary steps to exploit Ethiopia's untapped trade potential. Key Words: Dynamic Gravity Approach, Ethiopia, Trade Potential.