Does Extrrnal Public Debt Affect Ethiopla's Economic Growth?
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Date
2023-06-06
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A.A.U
Abstract
Ethiopia is a highly indebted poor country (HIPC), but empirical research concerning about the
relationship between external debt and growth is lacking and ambiguous. In the current research,
Auto-Regressive Distributed Lag Model (ARDL) is used to evaluate the connection between
Ethiopia's real GDP and external debt, utilizing yearly time series secondary data beginning from
1985 to 2021. The outcome demonstrates that the total stock of external debt has a significant
negative relationship with its real GDP. However, the aggregate amount of lagged debt service
has a short-run positive influence on the country’s economic growth. This reveals there is a debt
overhang effect but not a crowding-out impact. Additionally, labor force and internal conflict exert
a negative influence on the nation's real GDP in the short run, while gross capital formation and
trade openness have a positive impact. Only gross capital formation and total amount of external
debt have long-run positive and negative relationship with real GDP, respectively. The study
provides a definite response to the topic of how foreign public debt affects Ethiopian economic
growth
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Keywords
ARDL, Ethiopia, External Debt, Gross Capital Formation, HIPC, Real GDP