The Impact of Government Spending on Economic Growth in Ethiopia
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Date
2024-06
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Addis Ababa University
Abstract
This study aims to analyze the impact of government spending on economic growth inEthiopia by using annual time series data from 1994-2023. The study uses public expenditure
variables from recurrent and capital expenditure components Such as expenditure oneducation, defense, agriculture, Health, Industry, Transport, Road, Urban Development and
Interest payment expenditure components, that expenditure of all selected components are onincreasing trend. The result of the ADF test has shown that all variables are stationary at I
(1). Johansen Co-integration validates co-integration among variables as a sign of long runrelationship. VECM used to test to know long run and the short run impact of government
spending on RGDP growth in Ethiopia analyzed using STATA. In long run expenditure ofgovernment on Industry development, Urban Development and interest payment is positive
and has statistically significant, whereas expenditure on health, education, transport andcommunication and road construction sector has insignificant impact on RGDP growth in
Ethiopia. But government expenditure on defense and agriculture sector is negative andsignificant effects in long run. In short run, expenditure on agriculture, education, industry
development, transport and communication, urban development, health and expenditure oninterest payment are the major beneficiary for RGDP growth. But only expenditure
government on defense and Road construction sector has no significant impact on RGDPgrowth in Ethiopia. The author recommends that there is a need to manage and control
Public expenditure, increasing budget utilization system and decreasing corruption.Disaggregated analysis is valuable from the policy perspective therefore author
recommended future research is suggested why most of the public expenditure haveinsignificant relation with economic growth in Ethiopia. Finally author recommend that to
know the determinants of RGDP growth of developing counties like Ethiopia not only publicspending and also various shocks (i.e. rainfall, political and institutional factors, and etc)
should have to be studied.
Keywords: Government spending, RGDP, Economic growth, VECM, Ethiopia.