The Role of Pro-Poor Public Expenditure on Poverty Reduction in Ethiopia

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Date

2017-06

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Addis Ababa University

Abstract

The main objective of this study is to assess whether public expenditure on agriculture, education, and health and road construction have a positive and significant roleon poverty reduction. To ensure the robustness of the results, different preliminary tests such as time aeries stationary, serial correlation and co-integration tests are conducted. Data at country level are used for estimating the role of pro-poor public expenditures on poverty reduction. I used ordinary least square econometric analysis by time series data, and conclude public expenditure on agriculture, health and road construction are more effective in poverty reduction in Ethiopia. A strong relationship exists between independent variables and the dependent variable in the model over the period of 1992-2013. The regression model is not spurious as tested. The time series data of these variables contain unit root and they become stationary after conducting ADF test. They have long run relation as indicated by Granger casual co-integration test. The statistically significant elasticity coefficient of OLS estimation at level expresses that the 1% change in per capita public expenditure on agriculture, education and road will change the electricity human development index (HDI) by 0.18%.0.05%, and 0.03% respectively these shows that increasing volume of per capita public expenditure on agriculture, education and road has a role to increase electricity HDI and thereby reduce poverty in the country. Thus, the Ethiopian government should formulate policies that can help to mobilize domestic and foreign aid in the productive sector like agriculture, education and road in order to achieve desired economic growth that can increase electricity human development index and in turn create gainful income to the mass of Ethiopian people to reduce poverty. The results of Error Correction Model indicate that there is both short and long run equilibrium in the system. The coefficient of one period lag residual coefficient is negative and significant which represent the long run equilibrium. The coefficient is -0.237 meaning that system corrects its previous period disequilibrium at a speed of 23.7% annually. In nut shell, the public expenditure management should be based on impact assessment. In other words, spending money on the provision of public goods and services must take in to account the extent to which this expenditure benefits the poor. Therefore, to maximise the poverty reduction role of pro-poor public expenditures, the government of Ethiopia should focus more on the fulfilment and improvement of basic necessities of the poor such as agriculture, primary health care, primary education, rural infrastructures and food security by allocating more public resources to the pro- poor sectors than that of universal and non-basic services and goods. Key words; pro-poor public expenditure, Human development index, co-integration analysis, poverty reduction.

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Keywords

pro-poor public expenditure,;human development index; co-integration analysis; poverty reduction.

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