Determinants of Economic Growth in Ethiopia: Evidence from ARDL Approach Analysis

Abstract

Ensuring sustained real growth in national income is a primary concern to both developed and developing countries. It is that sustained growth in real national income to potentially explain an economy’s development path and people’s wellbeing. Though Ethiopia records double digit growth rate for last few years, it has been found to be unstable due to various internal and emerging global influences. Besides, recent home side political condition is also another challenge to the economic sector of the country at large. The present study examines factors potentially explaining the economic growth of Ethiopia using annual time series observations for the period running from 1981 to 2016. Individual variables were all subjected to both the ADF and PP unit root tests; and that, the existence of mixed order of integration has been confirmed with both approaches. For Cointegration issues, the ARDL approach was employed and the existence of long run relationship among variables entered the growth model has been confirmed too. Besides, none of the diagnostic tests was revealed invalid thereby ensuring the relevance of inferences made based on the ARDL estimates. The current and lagged impact of foreign aids is found to be important in explaining the economic growth of Ethiopia. Its current period impact was estimated to be positive and significant too as expected. Besides, the last year economic status of the country has also been suggested significant determinant of the current economic growth rate. Therefore, economic benefit of aids should be recognized and policy focus must be directed towards its efficient utilization. 

Keywords:, ARDL, Cointegration, Determinant Economic Growth, Ethiopia, Stationarity

DOI: 10.7176/DCS/9-1-05