The Economy-Wide Impact of Investment on Infrastructure for Electricity in Ethiopia: A Recursive Dynamic CGE Approach
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Date
2012-06
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Addis Ababa University
Abstract
In current periods Ethiopia has been implementing huge investment on electricity.
The studies on the economic impact of this investment conducted so far, however, are
not sufficient and no study is conducted by using a recursive dynamic CGE model. To
this effect, the study used a recursive dynamic CGE model. The model used an
updated version of 2005/06 SAM. The simulations examined to explore the impact of
this investment on Ethiopian economy are investment on electricity fully financed by
foreign saving (loan), investment on electricity fully financed by domestic households
and enterprise saving, and investment on electricity partly financed by domestic
household and enterprise saving and partly by foreign saving. We run these
simulations in combination with increase in TFP of industrial and service sectors.
The findings of the study have shown the improvement of the real GDP, output of
industrial and service sectors, average factor income and household income.
However, the high growth of real GDP is registered when the investment on
electricity is fully financed by domestic household and enterprise saving and when
this investment is partly financed by domestic non government institutions and partly
by foreign saving. Household consumption and consumption expenditure have raised
more when investment on electricity is financed by increased foreign savings.
However, they have grown at negative rate when the investment is fully financed with
increased domestic household and enterprise saving. In general, investment on
electricity fully financed by foreign saving is resulted in lower growth rate of real
GDP due to worsening of the net export and it is also expected to be repaid that
would increase indebtedness of the country. On the other hand, meeting this
investment with domestic household and enterprise saving will be difficult. So,
financing investment on electricity partly by domestic household and enterprise
saving and partly by foreign saving would be worthwhile.
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Economic Policy Analysis