Impact of Government Sect Oral Spending on Economic Growth a Particular Focus on Human Capital and Agriculture Sectors (The Case of Ethiopia)
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Date
2012-06
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Addis Ababa University
Abstract
The Ethiopian government aims to increase overall expenditure by more than 100% from
690.9 billion in GTP periods (2010/11-2014/15) as compared to previous plan period
(PASDEP, 2004/05-2009/10) expenditure. According to some scholars- Keynesian view,
the increase in Public spending on socio-economic and physical structures is important
and encourages economic growth. However some scholars – Classical economists on the
other hand argue that the increase in public expenditure may shift resources from the
productive private sector to public sector which they believe unproductive and hence,
crowd out overall performance of the economy. These views indicate that policymakers
are under debate whether increase in public spending helps or hinders economic growth.
The paper investigates the relationship between government expenditure and domestic
output (GDP) in Ethiopia. The study attempts to measure the impacts of sectoral public
spending – human capital and agriculture, on economic growth; using annual data set on
GDP and government expenditure for the period 1960/61-2010/11. Elasticities of GDP
with respect to human capital and agriculture are estimated using OLS regression
analysis. The study employ co-integration and error-correction model to examine the
short and long run relationships between GDP and government sectoral spending
(human capital and agriculture).
It is found that education sector expenditure has both short-run and long-run statistically
positive-significant effect on growth while health sector spending have negativeinsignificant
relation. With regard to agriculture, the result shows that it has negative
relationship with growth. The result also found the existence of longrun relationship
between the components of government spending and economic growth. These results
have policy implication that education if properly funded could bring about sustainable
economic growth.
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Keywords
government Sect oral Spending Oneconomic Growth