The Role of International Remittance on Economic Growth in Ethiopia: An Autoregressive Distributed Lag Approach

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Addis Ababa University


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



International Remittance, Economic Growth, ARDL, Ethiopia