The Effect of Export Earning Fluctuation on Physical Capital Formation in Ethiopia

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Date

2009-06

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A.A.U

Abstract

Physical capital plays a key role in determining economic development in a country. Based on this fact, the main objective of this study was to investigate the effect of export earning fluctuation on physical capital formation in Ethiopia by employing data ranging from 1970171 to 2007/08 using time series technique. The study used unit root and co integration tests to see the characteri stics of the data seri es. In addition, Vector Error Correction Model (VECM) was developed to investi gate the effect of variation of the explanatory variables in the short run on physical capital formation. The finding of the study shows that expected level of output and aid affects the level of physical capital formation in the country for the period of study positively and significantly. Export income fluctuation and real effective exchange rate, on the other hand, affects physical capital formation negatively and signifi cantly. The rate of gross domestic saving has positive short run implication on the rate of phys ical capital formation as iJld icated in the ShOl1 run dynamics during the entire period of study.

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Keywords

Physical Capital Formation, Effect Of Export

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