Macroeconomic Impacts of External Assistance in Ethiopia
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Date
2002-05
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Addis Ababa University
Abstract
The thesis examines the impacts of external assistance on the economic performance of the
country for the period 1960/61 –1999/00. The analysis makes use of the Johansen maximum
likelihood estimation procedure estimating five equations to identify the independent effect of
foreign assistance on investment and/or growth, saving, government tax revenue, government
tax expenditure and real exchange rate. Accordingly, it is found that external assistance
negatively affected the investment rate and hence the growth rate of the economy. The paper
further investigates these unexpected negative relationships between foreign inflows and
economic growth. The insignificant effect of external grant on domestic saving, negative
impact of external grant on government consumption and the ‘Dutch Disease’ effect of both
foreign grant and loan is responsible for the negative impact of foreign assistance on
economic growth of the economy.
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Economic Policy Analysis