The Determinants of Economic Growth in Ethiopia: A Time Series Analysis

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Addis Ababa University


The main objective of this study is to investigate the determinants of economic growth in Ethiopia during the period 1974-2013. The Autoregressive Distributed Lag (ARDL) Approach to Co-integration and Error Correction Model are applied in order to investigate the long-run and short run relationship between the dependent variable (real GDP) and its determinants. The finding of the Bounds test shows that there is a stable long run relationship between real GDP, Physical capital, human capital, export, aid, external debt and inflation. The empirical results reveal that both physical capital and human capital are found to have positive impact on economic growth while debt affects economic growth negatively and statically significant at 1 percent. However, the study found out that export of goods and service, foreign aid and inflation have statistically insignificant impact on economic growth in the long run. This study has also an important policy implication. The findings of this study imply that economic growth can be improved significantly when the physical capital and human capital increases. Hence policy makers and /or the government should strive to increase capital formation (investment) which is believed as a back bone of growth and has allocate adequate finance for human capital, which will help to work on quality of education and providing basic health services to the society. In addition to its effort, there should be a close monitoring and consistent debt management strategies, which is used to avoid misallocation and mismanagement of external debt problem.



Determinants of Economic Growth in Ethiopia