The Role of International Remittance on Economic Growth in Ethiopia: An Autoregressive Distributed Lag Approach
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Date
2014-10
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Addis Ababa University
Abstract
Having the general objective of investigating the role of international remittance on
economic growth in Ethiopia, this study have used an auto regressive distributed lag
(ARDL) model or Bound Testing approach to cointegration. The data used is from World
Bank Development Indicators which spans from 1981 to 2012.
The outcome of the study revealed that, the long run growth impact of international
remittance during the study period is positive and significant. However, the short run
effect is found to be negative and statistically significant, showing the consumption
smoothing role of remittance income in the short run. Apart from this, other growth
determinant factors, such as human capital, labor force and gross fixed capital formation
are found to significantly and positively affecting growth in Ethiopia. Moreover, the
Granger Causality test has confirmed that there is a unidirectional causality which runs
from remittance to output. The most important policy implication that comes out of this
study is that the government as well as other concerned stakeholders should work on
easing the remittance sending process and cost, so as to better extract the economic
benefit of international remittance.
Key Words: International Remittance, Economic Growth, ARDL, Ethiopia
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Keywords
International Remittance, Economic Growth, ARDL, Ethiopia