Composition of Government Expenditure and Economic Growth in Ethiopia (1975-2011G.C)

Abstract

The aim of this quantitative study is to analyze the compositions of public expenditure with economic growth in Ethiopia. The focuses of this paper is to examine which composition of public expenditure promoting economic growth in Ethiopia. Public expenditure data was collected from 1975-2011G.C. Regression analysis is applied to the composition of public expenditure on economic growth.  The study found that the independent variables (agri, he, rtac, trind,) altogether accounted 97 % changes in economic growth. On the other hand, considering the composition of public expenditure, on agriculture, health, trade and industry are statistically significant in explaining changes in economic growth. However, expenditure on road transport and communication is statically insignificant in explaining economic growth in Ethiopia. The study recommended that the government should increase efficiency of the financial resource by scrutinizing and evaluating for spending in transport and communication to create new capacity and support existing capacities. In addition, government should strengthen three principal-agent relationship dimensions(C=M+D – A) of the organizational structure that is crucial in decreasing the opportunity for corruption in government spending. From the social change perspective, if the government put into practice the suggested solutions as inputs for future policy formulation and successful execution of public expenditure, the wellbeing of the public will be enhanced. Ethiopians will experience significant improvements in growth and development, standard of livings and increase in employment.

Keywords: Composition of public expenditure, economic growth, co-integration, unit root test.