The Contribution of Migrant Remittance on the Economic Growth of Ethiopia: An Autoregressive Distributed Lag Approach

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Scholars in different counties characterized the impact of remittance on economic growth differently. The optimist view agreed in that remittance has a positive effect on the remit receiving country through stimulating the economic growth. However, the pessimist view argued that remittance shouldn’t encourage the economic growth; rather it holds back the economy through increasing dependency on the foreign by remit receiving countries. The general objective of the study is to assess the relationship between remittance and economic growth in Ethiopia, Autoregressive Distributed Lag model approach was used to evaluate their interdependencies. The adopted model is applied to investigate the existence of short run and long run relation between the dependent and independent variables. The data used is collected from Nation Bank of Ethiopia, Ministry of finance for economic development and World Bank Development Indicators; which spans from 1984 up to 2018. The finding revealed that remittance affects economic growth positively and significantly both in the short run and in the long run. On top of that other independent variables in the model do not have a strong influence on real gross domestic product in the short run. Whereas, in the long run the forecast error variance in real gross domestic product is explained by a strong influence in predicting real gross domestic product. The most important policy implication that comes out of this study is that the government as well as other concerned party should work on easing the remittance sending process and cost, so as to better extract and benefit from the hard currency which the country relay on.



Economic Growth, Migrant Remittance