Analyzing the Impacts of Petroleum Consumption on Economic Growth in Ethiopia
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Date
2025-01-20
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AAU
Abstract
Ethiopia, like any other emerging countries, has demonstrated poor economic performance.
Although the fact that the country's current economic performance is highly remarkable, there
are a number of challenges to sustain the present trend of economic growth. The main challenge
is the availability and scarcity of energy sources. Energy is a driving force of development and
plays a significant role in the country’s economic growth and prosperity. Ethiopia's economy is
heavily dependent on imported petroleum products. Petroleum is one of the most important
commodities in social, political and economic challenges. The main objective of the study was to
examine the impacts of petroleum consumption on economic growth. Specifically, it determined
the short and long run relationship between petroleum consumption and economic growth. It
also examined the impacts of petroleum price on economic growth, to analyzing and showing the
trends of petroleum consumption and economic growth over the study period. It modified a
growth model with GDP as the dependent variable and labour force, domestic capital investment
and petroleum consumption and unit price of petroleum products as the independent variables to
be estimated. An exploratory research design was used and research work followed a quanitative
approach by using secondary source of data was used to collect information and Error
Correction model was used to estimate.
First, the study determined the stationarity of the variables by using ADF and phillips-perron
test and its result shows that all the variables are non-stationary at levels but stationary at first difference. The Cointegration tests result indicated that the null hypothesis of no-cointegration
was rejected at 5% level of significance. The estimation results of the long-run relationship
revealed that the relationship between PC,AUPP and DCI with GDP was negative and
statistically significant but LF was positive and not statistically significant. The estimated
methods of the error-correction model shows that in the short run there was a positive and
statistical insignificance impacts of lagged petroleum consumption on real GDP. The Granger
causality test result shows there was unidirectional causal relationship between petroleum
consumption to GDP.
Finally the result concluded that petroleum consumption has negative impacts on economic
growth and the country is recommended that to derives or formulate policy implications from the
results obtained regarding the implementations of the upstream projects of the petroleum and
gas industry and to develop in alternative energy sources as substitutes of petroleum products