Applied Economic Modeling And Forecasting (Fiscal Policy Analysis And Planning)

Permanent URI for this collection


Recent Submissions

Now showing 1 - 20 of 27
  • Item
    Trends and Drivers of Current Account Balance in Ethiopia
    (A.A.U., 2022-07-05) Geremew Birhane; Mengesha Yayo (PhD)
    A country's current account balance is an important leading indicator of its economic health. It comprised of „goods and services‟, „income‟, and „current transfers‟ sub components. The main aim of this paper was to investigate the trends and drivers of current account balance of the Ethiopian economy. The study examined the trends and drivers of Ethiopia's current account balance using annual data from 1990 to 2019. This study used both descriptive statistics and econometric methods to estimate and analyze the drivers of current account balance on Ethiopia‟s economy. The ARDL bounds testing approach to co-integration analysis was used in the study to establish the long run relationship between the relevant time series variables under investigation. The empirical findings of study revealed that the coefficients of parallel market premium, average oil price and degree of openness, and real GDP per capita income growth were statistically significant. Conversely, the coefficients of the variables like real effective exchange rate, fiscal budget balance and financial deepening were found insignificant in the long run. The Current account balances as a major policy variable has positive and significant effects at first difference on Ethiopia‟s current account performance in the short run. In the Ethiopian economy, the current account balance is deteriorating, indicating a significant financial need that could increase the country's international indebtedness and reduce its international reserves. Likewise, the ECM term was statistically significant in determining current account balance disequilibrium adjustment in the short run. Therefore, the study's policy implication is that large amounts of government spending are required to expand infrastructures, which are supposed to increase private investment, particularly in the manufacturing and export sectors.
  • Item
    The Impact of Countries’ Policy and Institutional Frameworks on Food Insecurity: Evidence from Sub-Saharan Africa Using Dynamic Panel Data
    (AAU, 2023-06-05) Tilahun Bizuneh; Habtamu Adane(PhD)
    Food insecurity remains a critical global challenge, especially in sub-Saharan Africa. This study investigates the impact of policy and institutional factors on food insecurity in the region. Using comprehensive panel data from 38 countries over 2005-2021, various econometric techniques are employed, with system GMM chosen as the final analysis tool. The findings reveal significant negative relationships between strong policy and institutional components and food insecurity. Factors such as equity on public resource, fiscal policy, macroeconomic management, public sector management, and structural policy play a crucial role in reducing undernourishment. This study highlights the urgency of addressing food insecurity and emphasizes the need for targeted interventions based on specific policy and institution factors. It contributes to existing literature and underscores the importance of effective policies to achieve sustainable food security in sub-Saharan Africa.
  • Item
    The Potential Economy-wide Effects of Economic Integration in the African Continental Free Trade Area (AfCFTA): Evidence from Ethiopia. A Recursive Dynamic Computable General Equilibrium (CGE) Model Approach
    (A.A.U., 2022-07-03) Minda Tesga Hayles; Tadele Ferede (Ph.D.)
    Historically, economic integration, which has been an important structural feature in the international economy, is an integral part of the economic policy issue of global, continental, and regional economies such as Africa. Most of the literature on the potential economy-wide effects of economic integration in Ethiopia shows ambiguous results. Owing to this fact, the main aim of this study is to identify aspects of the sectoral, trade, revenue, and welfare effects of economic integration in Ethiopia, in particular, if the African continental free trade area (AfCFTA) implementation plays a role. This study adopted a theoretical framework and employed descriptive as well as simulation analysis. The simulation analysis employed a recursive dynamic computable general equilibrium (CGE) model and used a 2015/16 social accounting matrix (SAM) dataset. The simulation result shows that economic integration in the African Continental Free Trade Area (AfCFTA) is likely to have a positive effect on the Ethiopian economy, such that sectoral productivity of most economic sectors, trade flows, and welfare are improved (affected positively). However, government revenue decreased due to tariff reduction (cut); hence, it is one of the most important sources of government income, and such tariff reduction results in no more government income from import tariffs. In sum, Ethiopia is likely to benefit from joining the African Continental Free Trade Area (AfCFTA). Hence, it will have a positive effect on the Ethiopian economy by improving sectoral productivity, trade flows, and welfare. Ethiopia might face a revenue loss. Due to this, the way of reaction to structuring its tariff offer and negotiating with its African partners, it is necessary to retain a significant number of tariff lines for sensitive and excluded items over a longer period of liberalization, and subsidization programs or targeted tax incentives are required to help the transformation of those sectors that stand to lose as a result of trade liberalization. Moreover, multidimensional policy measures are vital, in addition to tariff reduction (cut), protection of the domestic infant industries, building the potential to produce (substitute) products that are largely imported from outside, and removing production side (infrastructural) constraints should also be a long-term policy or strategy for Ethiopia and other member countries of the AfCFTA.
  • Item
    Determinants & welfare implications of the choice of climate change adaptation strategies in the Nile Basin of Ethiopia
    (A.A.U., 2020-10-07) Sara Getachew Zicke; Hailu Elias (Dr.)
    A backdrop of a high risk of climatic shocks have necessitated for climate resilient green economy strategies to be proposed. One of the pillars of the strategies is the use of multiple climate change adaptation strategies which are deemed to be essential for improving household food security. In this study, the effects of household, farm, climatic and institutional factors on farmers’ decisions to employ adaptation practices are analyzed. A survey of 902 farm households for study periods of 2015,2016 and 2017 were followed combined with historical climate data in the Nile Basin of Ethiopia. This was explored using multivariate probit model and fixed effect econometric models. Results confirm that land certificate, fertility of soil, TLU, distance to input market, environmental shocks such as erratic rainfall, drought, flood, animal attack, hailstorms, being single, wind, age, extension visit, radio, neighbors, agriculture, watershed, forest, iddir, local government, religious and multipurpose membership, average rainfall and slope of land are important determinants of the choice of the climate change adaptation strategies. The result of the fixed effects model showed that adoption of climate change adaptation strategies made adopters more productive than nonadopters, on average. Adoption of Crop variety, Livestock decrement, Soil and water conservation, Soil and water conservation & Crop variety and Full strategies was found to be paying off. In particular, Crop variety resulted in the highest number of payoffs of yield. The result suggests the need for increasing access to quality extension services to increase the information dissemination, expanding the access to infrastructure, giving property rights to increase land certification and encouraging social networks participation.
  • Item
    The Nexus between Inflation, Money Supply and Economic Growth in Ethiopia
    (A.A.U., 2023-06-02) Kassa Wondatir; Alemu Lambamo (Ph.D)
    This study explored the nexus between inflation, money supply and economic growth in Ethiopia using a quarterly time series data form 1997/98 Q1 to 2021/22 Q4. The study employed Structural Vector Auto regressive (SVAR) Model and descriptive statistics in order to analyze data collected from National Bank of Ethiopia (NBE) and World Bank economic outlook. The research shows that inflation in Ethiopia is caused by the money supply, supporting the monetarist theory and variations in the average inflation rate are extremely sensitive to changes in inflation expectations and substantially to changes in money supply increase. The percentage of currency in circulation and money growth had been steadily rising over time, which put further pressure on the overall price level. The research also shows that, in the short run, economic expansion has a negative impact on inflation. Economic growth lowers inflation if the primary drivers of such growth are noninflationary factors like a rise in output and productivity. But, monetary forces can only account for a portion of Ethiopia's inflation. Virtually, money supply increase caused by public credit expansion has a substantial and considerable impact on inflation since it keeps the country's currency's value from appreciating. Overall, the major policy implication of this study is that, the sensitivity of inflation to changes in monetary growth need to be taken into consideration by both monetary and fiscal policy makers and increased investments in agriculture and other food sectors are required as a result of price shocks related to the real production sector. Since, stronger inflationary expectations may have been the cause of the estimated larger than unit elasticity of the money supply, by guaranteeing credibility in the targeting and announcement of important economic and general policy variables, the influence of expectations on inflation can be also reduced.
  • Item
    Modelling the Dynamic Interaction between Production Growth and Carbon Footprint of Livestock Sector in Ethiopia
    (A.A.U., 2023-06-04) Petros Terefe Tolcha; Helen Berga (PhD
    Livestock is the largest agricultural sub sector, supporting the livelihood of many populations and the economy in Ethiopia. The sector is, however, a significant contributor to the carbon footprint in the country. Only direct emissions from the sector accounted for more than 36% of total emissions. Thus, the purpose of this study is to model and evaluate the livestock production system and its contribution to the carbon footprint. A system dynamics model that represents the livestock production system and its interaction with the environment in Ethiopia has been built. The simulated results have demonstrated that increasing meat productivity through improvement in feed quality and supply, increasing slaughter, managing land use change, and implementing price policy have a sound effect on lowering greenhouse gas emissions (GHG) while also improving the supply and value of meat. The policy scenario has achieved 15% and 11% growth in meat and livestock value, respectively, while reducing greenhouse gas emissions by 40% compared to the base case in 2040
  • Item
    The Performance of Coffee Marketing in Ethiopia: The Case of IIIubabor and Jimma Zones
    (A.A.U, 1996-06) Tesfay, Solomon; Amha, Wolday (Dr)
    During the era of Derg, there had Deen state monopoly in the coffee trade. the state coffee markecing parastatal (Ethiopian Coffee Marketing Corporation ) wa s ope rating based on fixed price arrangements . Once the state parastatal is in place entry t o the coffee trade was difficult . The system has also reduced competition among traders. The long term effect of such a move was .suppression of producer incentive and production. Hence it was apparent to the transitional government of Ethiopia to liberalize the coffee market at all levels. The main objectives of this study are: i ) to describe the coffee marketing system in illubabor and Jimma zones, ii} to assess the structure of coffee marketing in the study area , iii} to measure the efficiency of the coffee marketing system, and iv} to assess the effect of the reform on performance of coffee marketing and to provide basic information which assist policy analysis. The analysis was carried out by using S-C-P approach. The results show that the liberalization policy adopted has achieved certain improvements in the structure and efficiency of the coffee trade. The reform have lifted the licensing barrier and reduced tax levied on coffee trade and license issuance fees. It has also abounded the restrictions imposed on licensing. The reform have also resulted in the free movement of prices. The bivariate correlation analyses shows that prices in the selected markets are highly integrated with the central market. The Timer's indices and the co integration test also show the same result. There are, however, a lot of shortcomings in the structure and inefficiencies in the coffee marketing . There are high market concentration, lack of capital and credit, and restrictions on areas of operation. In some markets there is also poor market information flow among traders. In view of the efficiency, there appears to be significant seasonality and inter - temporal price inefficiency.
  • Item
    The Dynamic Effects of Fiscal Policy Shocks on Macroeconomic Variables in Ethiopia: Evidence from (SVAR) Model
    (Addis Ababa University, 2019-06) Marsimoe, Bekele; Fantu, Guta (PhD)
    This paper investigates the dynamic effects of fiscal policy shocks on macroeconomic variables in Ethiopia using SVAR and VECM approach on quarterly data for the period 2000/01Q1- 2016/17Q4. From the empirical findings, the response of macroeconomic variables is asymmetrical depending on the aggregate and disaggregate components of fiscal policy variables. Basically, a positive shock to government spending was found to have a positive effect on output but at the cost of higher inflation,and has delayed positive effect on the interest rate. In line with the theory, the response of output to positive innovations of tax revenue was found negative in the short run and long run. Consequently, a positive shock to tax revenue has a positive effect on inflation and interest rate. For the subcategory of government spending –similar to total government spending a positive shock to recurrent spending has a positive effect on inflation and output in the short run. However, in the long run the effect of recurrent spending on inflation was insignificant. In addition, the response of interest rate is negative to a positive recurrent spending shock in the short run and insignificant in the long run. In contrast to recurrent spending shock, a positive shock in capital spending has a positive effect on output in the short run. However, it is insignificant. The reason could be the mismanaged and corrupted capital projects which contribute to inflationary pressure in the short run. However, in the long run the effect of capital spending on output is positive and significant and also does not lead inflation. Similar to recurrent spending positive innovations of capital spending has a negative effect on the interest rate in the short run. However, in the long run the effect of recurrent spending on interest rate was insignificant. Whereas, the effect capital spending was negative on the interest rate which result in crowding in private investment. In the case components of tax revenue, a positive shock to indirect tax has a negative effect on output in both in the short run and long run. Similar to the total tax revenue shock, a positive shock to indirect tax has a positive effect on interest rate and inflation in the short run. However, the effect of indirect in the long run on inflation was negative. On the other hand, a positive shock to direct tax has a persistent positive effect on output and has delayed positive effect on interest rate and inflation in the short run. Consequently,
  • Item
    Economy-Wide Impacts of Export Price Changes in Ethiopia: A Recursive Dynamic Commutable General Equilibrium Analysis
    (Addis Ababa University, 2018-10) Endalkachew, Kabtamu; Sisay, Regassa (PhD)
    Ethiopia’s export is largely dominated by primary commodities characterized by a high degree of price variability. Therefore, this study investigated the economy-wide impacts of export price changes using Recursive Dynamic Computable General Equilibrium model calibrated through 2009/10 Social Accounting Matrix of Ethiopia, developed by International Food and Poverty Research Institute in collaboration with Ethiopia Development Research Institute and University of Sussex. The study reveals increase in export price appreciates domestic currency, rises import demand, but reduces export demand together that worsens Ethiopia trade balance. The increase in export price also weakens investment demand, government income and saving, the overall and sectoral economic growth. It also rises factors return and household income and welfare. Conversely, decrease in export price depreciates domestic currency, which lead to low import, but, high export demand, which in turn leads to improved trade balance. It also increases investment demand, government income and saving, and the overall economic growth. However, decrease in export price results low factors return, household income and welfare. To reduce the negative impacts of export price changes in the overall economy, it is recommended that: a) the exchange rate policy of the country should managed-floating type, b) diversification and industrialization of export sector through integrating commodity policies into the country overall development strategy, and c) harness the income gains from commodity prices to facilitate wider-economic transformations and reduction of dependence on primary commodities export.
  • Item
    The Economy Wide Impact of the Devaluation of Ethiopian Currency: A Recursive Dynamic Computable General Equilibrium Approach
    (Addis Ababa University, 2018-06) Aklilu, Abebe; Zerayehu, Sime (PhD)
    In recent times, Ethiopia has experienced far-reaching economic growth and development changes. Despite this growth, the country has been chronically running a trade deficit. Devaluation is one of the most important but controversial trade policies recommended by the IMF for most of the developing countries in restoring the trade balance and increasing real GDP growth. To this end, this study analyzes the economy-wide impact of the devaluation of Ethiopian currency (birr) using Dynamic Computable General Equilibrium (DCGE) Model. The model used an updated version of 2009/10 Ethiopian SAM developed by Ethiopian Development Research Institute (EDRI). Three different simulation scenarios have been simultaneously used to evaluate the real impact of devaluation on the economy; 15%, 25% and 35% increase in exchange rate respectively. The findings of the study reveal that devaluation results in a decline in the overall GDP growth and domestic absorption. On the other hand, the trade balance has been improved under all simulation scenarios. Moreover, the productions of agriculture and service sectors expand whereas that of the industrial sector shrinks at a higher rate. By and large, real consumption, fixed investment, GDP, government revenue and household welfare are all adversely affected justifying that devaluation has contractionary effects on the Ethiopian economy. Based on the findings, the researcher suggests the monetary authority to stick to its managed floating policy stance and make changes in cautious and predictable manner. Moreover, there is an obvious need to combine monetary policy measures with fiscal policy in order to promote sustained economic development.
  • Item
    Modeling and Forecasting Currency in Circulation in Ethiopia
    (Addis Ababa University, 2014-06) Semate, Getahun; Ferede, Tadele (PhD)
    In the literature, Currency in circulation is typically estimated either by specifying a currency demand equation based on the theory of transaction and portfolio demand for money or univariate time series models. The first approach works well with low frequency data but faces limitations with high frequency data series. Using monthly and weekly data of currency in circulation form May 2007 to April 2014, the paper proposes an alternative approach in modeling the high frequency data series by using Multivariate time series (structural model and VAR) univariate time series(trend and ARIMA) Model. The four separate models were estimated with monthly, and two separate models with weekly time series, assembling tools for forecasting trend, seasonal patterns and cycles in individual series separately. Trend and seasonal effects were identified by regressing on trend and seasonal dummies while cyclical dynamics were captured by allowing for ARMA effect in the regression disturbances. The monthly and weekly models clearly identify both intra –month and inter-month variation of currency in circulation. The monthly trend model also indentified that Ethiopian New Year has significant positive impact on demand for currency in Ethiopia. Finally model comparison result showed both monthly VAR, and trend models outperforms the structural and ARIMA models and trend model performs the weekly data wheel at 5% level of significance. In general this methodology may be used in forecasting currency in circulation with careful assessment of month to month and week to week current developments in the economy.
  • Item
    The Effect of Remittances on Household Expenditures and Labor Supply in Ethiopia: Evidence from Ethiopian Rural Household Survey.
    (Addis Ababa University, 2014-06) Ejeta, Genet; Tuffa, Adane (PhD)
    The study examined the impacts of remittances on household expenditures and labor supply in rural households in Ethiopia. Specifically, the paper investigates the extents to which receipts of remittances affect the consumption and investment behaviors of rural households. The study employs two-part model (Hurdle model analyses in order to estimate the impact of household expenditure within Engle‟s Curve framework .The result indicates that there is no strong link between receipt of remittances and productive investment expenditures. The study finds that households receiving remittances spend, on average ceteris paribus, a larger share of their budget on consumption of food and a smaller share on than do households receiving no remittances. This implies that migration and remittances are used as a short term coping strategies and hardly used as stepping-stone to productive investment options. Therefore, designing policies that increase the inflow and usage of remittances are vital. Policies include: improving the operation and service of financial institutions, providing incentives and training for remittance recipients to be designed. This paper also examines the impact that remittances has on the remittance-receiving households‟ labor supply decisions, specifically examining how they affect off-farm work effect of using panel data. The study aims to investigate how the received remittances are affecting the recipient household‟s labor supply by applying the neoclassical model of labor-leisure choice, and by analyzing data on ERHS. The finding from Tobit model shows that remittances affect labor supply negatively for both men and women (especially women) and these results thereby contribute to the understanding of how this aspect of migration affects the households and source countries‟ economy. Key Words and Phrases: Remittances, labor supply, Household expenditures and investment, Rural households, Panel data.
  • Item
    Can the Monetary Authority Control the Stock of Money Supply in Ethiopia an Empirical Investigation
    (Addis Ababa University, 2014-06) Desalegn, Gashaw; Ferede, Tadele (PhD)
    The aim of this paper is to investigate empirically the ability of Nation Bank of Ethiopia to control the stock of money supply. This investigation seems to conform to the ongoing controversy surrounding the exogeneity /endogeneity hypothesis regarding the money supply i.e. the controllability/non-controllability of the money supply by the Central Bank. The paper has first tested the money multiplier model which says money is exogenous and thus controllable by central banks. We examine the constancy and Stationarity of the money multiplier and the results suggest that the money multiplier remains non stationary for the entire sample period. We then tested cointegration between money supply and monetary base and find the evidence of cointegration between two variables. The coefficient restrictions are satisfied only partially. The result from this model shows it will be difficult to use the money multiplier model as a frame work for monetary policy. The paper attempted to test the post-Keynesian hypothesis of endogenous money for Ethiopia using Granger Causality test. We have found that at all level of lag lengths credit causes broad money but at higher lag length broad money do not cause credit in the sample period. Though the result seems gloomy the endogeneity of money supply is strong.
  • Item
    The Nexuses between Tax Revenue, Inflation, Private Final Consumption and Economic Growth in Ethiopia
    (Addis Ababa University, 2016-06) Handamo, Firehiywot; Guta, Fantu (PhD)
    The study aims at understanding the nexus between tax revenue, private final consumption, inflation and economic growth in Ethiopia. To achieve this objective co-integrated VAR approach was employed. The estimated models enable to understand the long run and short run relationship of the variables for the period 1970–2015 in Ethiopia. The study have the following major findings: First, Real GDP exert negative and significant effect on real tax revenue in the long run while the impact of the real private final consumption is positive and insignificant in the long run. Second, there is a strong evidence that inflation exert negative impact on real tax revenue. Third, there is evidence of bi-directional causality between real tax revenue, inflation, real private final consumption and real GDP. Fifth, the impulse response function indicates that the variables are at fast movement towards long run time path. The overall findings of the study underlined given the long run negative impact of RGDP on real tax revenue, it will be natural to think of different reforms. Here, Inferences drawn will have implications for all stakeholders in the economy and are particularly useful for fiscal policy makers of the country.
  • Item
    Government Support and Export: A DID Approach
    (2008-06) Regassa, Eyerusalem; Demeke, Mulat (PhD)
    The government of Ethiopia have been trying to create a good environment for investors and exporters of non-traditional product by providing different export and investment incentives. Among these are the Export Trade Duty Incentives and Export Credit Guarantee Scheme. This study investigates the impact of these schemes on export. A Difference -in-Difference methodology was used to estimate effects of the two export incentives adopted in Ethiopia. With data for individual exporters of the year 2000and 2002 , the DID estimation shows significant impact of export incentives on export .But this should not be over emphasised ,one has to look at the costs for the government either in terms of foreign exchange or opportunity cost of the funds to the country. The government have been providing substantial amount of support to exporter up on their demand to hit the intended target with out no cross checking of whether the subsidy have been used properly or not as long as the firm export the targeted amount. Hence thinking of what this funds could do in other sector or areas of investment. As well thinking of how little variation of export is explained by subsidy as it shown in the DID methodology. The government should consider the cost of subsidy hand in hand with the gain from this subsidy.
  • Item
    Foreign Direct Investment and Uncertainty in Africa
    (Addis Ababa University, 2012-06) Andargie, Ephrem; Mulat, Teshome (Prof); Hassen, Syed (PhD)
    In the past two decades, there has been a significant increase of FDI flow to all developing countries. However, Africa still lags behind in the attraction of this investment. Why African has received a little FDI inflows as compared to other developing countries is the starting question of this study. Theories suggest that the prevailed uncertainty in Africa is considered as a reason for the poor FDI attractions. Having this concept, the paper examines weather macroeconomic uncertainty and political instability affect inflow of foreign direct investment (FDI) to Africa. The study estimates both fixed and dynamic GMM Panel-data models using data from 25 African countries over the period 1995 to 2009. Unconditional standard deviations are applied to capture macroeconomic volatility and state fragility indices are taken to measure political instability and institutional strength towards corruption. We find that macroeconomic volatility proxied by inflation has a deleterious impact on FDI inflows to Africa while exchange rate volatility has no statistical significance. We also find that level of corruption and political instability are not statistical significance Key word: FDI, Macroeconomic Uncertainty, Political instability and co
  • Item
    Monetary Policy and Exchange Rate Shock on Ethiopian Trade Balance: Using SVAR Approach
    (Addis Ababa University, 2014-06) Abinet, Chalachew; Hasan, Syed (PhD)
    This paper investigates monetary and exchange rate policy shock on Ethiopian trade balance. Trade balance is the most important macroeconomic variable in every country due to its importance for economic growth and it is affected by monetary and exchange rate policy. To accomplish this study the researcher used Structural Vector Autoregressive model. The time series data included for the study was quarterly data starting from quarter on 1997/98 to quarter four 2012/13. The variables included under study was trade balance which is expressed as a ratio of export to import, consumption gap(foreign- domestic), consumer price index gap(foreign- domestic), reserve money and real effective exchange rate. Stationarity of time series data was tested using ADF test. To select the best lag length information criteria BIC and AIC and others were used lag two was selected as the best lag length. Johansen cointegration test was used to test the existence of long run relationship among variables. SVAR restriction approach based on theory was applied to analyze these variables. The impulse response result shows that exchange rate appreciation improves the trade balance in the short run and deteriorates in the long run which supports the J curve effect. But expansionary monetary policy does not support the existence of J curve effect rather it has cyclical pattern and it affects the trade balance through expenditure switching effect. The expansionary monetary policy dominates the exchange rate effect on explaining the Ethiopian trade balance fluctuation
  • Item
    The Financial Determinants of Private Sector Investment: The Case of Ethiopia
    (Addis Ababa University, 2016-06) Teklay, Brhane; Guta, Fantu (PhD)
    This study mainly emphasized on the financial determinants of private sector investment in Ethiopia using annual time series data from1975-2015. Using Johansen co integration test they have a significant relationship among variables and OLS regression analysis was undertake to estimate long run model and ECM has been used to find out the short run dynamics. In both long run and short run model the financial determinants variable like broad money supply, bank credit and availability of foreign exchange were positive relation with the private investment. The other macro variable taken was the capital expenditure, which is negatively affect in the long run and positively affect private investment in the short run. The researchers conclude based on past literature result’s capital expenditure is positively association with private investment. The short run dynamics of estimated coefficient ECM which suggests a relatively quick speed of adjustment back to the long-run equilibrium. The findings of the study provide evidence that private investment in Ethiopia, like in other developing countries is affected by important financial and macroeconomic variables. The empirical evidence however has certain important policy implications, and in view of that recommendations have also been provided, in an attempt to help increase and stimulate private investment in Ethiopia. Key words: Ethiopia, private investment, financially determinants, Johannes co-integration.
  • Item
    The Economy -wide Impact of Continental Free Trade Area (CFTA) on Ethiopia: A Recursive Dynamic Computable General Equilibrium Approach
    (2016-06) Hailemeskel, Begidu; Estiphanos, Girma (PhD)
    This study examines the economy wide impact of CFTA on Ethiopia. The analysis is made based on Ethiopian social accounting matrix (SAM) of 2009/10 constructed by EDRI. The study has utilized a recursive dynamic CGE model. The model is simulated for an import tariff reduction on different sectors using three different scenarios. The scenarios involve joining CFTA at one time, in 2016, or through phases, a 25% tariff removal each year from 2016-2019. Another scenario involves excluding strategic sectors from the CFTA. The impact of CFTA result shows, Government revenue also decreases as tariff revenue is an important source of revenue for the Ethiopian government. GDP and trade balance are, however, positively affected. The increase in GDP might be associated to the increase in disaggregated production. The larger increase in exports as compared to the increase in imports leads to an improvement in trade balance. Household consumption expenditure also increases. This might be due to the availability of cheap consumption commodities from abroad due to the removal of tariff. On the other hand, our results show a decrease in investment which might be attributed to the inability of domestic producers to compete with foreign suppliers at a lower price. Our findings also show that protection of strategic sectors benefits only producers in these sectors. Exclusion of strategic sectors from CFTA helps producers face less competition as the price of imported commodities will include tariffs. Protection of strategic sectors will also increase government revenue. The impact of protecting strategic sectors on the overall economy, however, is negative, which is it results in a decrease in GDP.
  • Item
    Determinants of Private Saving in Ethiopia
    (Addis Ababa University, 2016-06) Wodamo, Ayele; Mekonnen, Alemu (PhD)
    Saving is an important instrument to enhance economic growth by providing sufficient funds for investors. However, empirical literature that relates to mobilizing savings in Ethiopia is in broad aggregate forms and almost no work is conducted on determinants of private savings in Ethiopia. For this reason this study empirically investigates the determinants of private saving in Ethiopia by using annual data over the period 1980-2015. Accordingly to identify the factors that affect private savings in Ethiopia the researcher employs ordinary least squaresand error correction models fitted for time series data. The variables examined are real gross domestic product, inflation, government fiscal balance, real deposit rates, current account deficit and financial development indicators. The results indicate that private saving in Ethiopia is a response for variables, real gross domestic product, government fiscal balances, real deposit rate and financial developments but it is not responsive to inflation and current account deficit in the long run. In addition to this granger causality tests indicate that economic growth causes privates savings in Ethiopia which is in line with Keynesian theory, that it is higher economic growth that leads to higher saving.Finally, the study recommends that policy makers or government work to improve income levels of society to address adverse effects on private saving. Likewise the study suggests that fiscal policy should be designed and implemented in a prudent way such that it cannot lead to crowding out private saving