Agricultural Export and Economic Growth with Application of Co-integration Model: The Case of Live Animal, Meat and Leather Products in Ethiopia

Abstract

Economic growth is an increase in productive capacity of an economy. There is different school of thought on economic growth including from the classical to solo-swan economic growth theories. Export sector of the country were seen as engine to economic growth through economies of scale, accessing the markets and expanding trade. This study was conducted in order to investigate the relationship between export and economic growth, special focusing on agricultural export (meat, live animal and leather export) in Ethiopia. The data used for this study were a time series data from 1971 to 2018. The data were analyzed using co-integration model and vector error correction model. The finding of the study showed that consumer price index and live animal export) were affecting real GDP negatively while meat export, exchange rate and gross fixed capital formation affects real GDP positivity in the long run. The result from the short run matrix showed that the coefficient of error correction term for the equation is  significant and negative, which indicates there is a reasonable adjustment towards the long rung steady state. This guarantees that the real GDP may temporally deviate from its long equilibrium value and converge to its equilibrium. The value of error correction term (-0.31146) indicated that about 31% of the deviation of real GDP from its equilibrium value is eliminated every year, as a result the full adjustment would require a period of more than three years. Live animal export is significant and its coefficient is negatively related to real GDP, indicating that it has unfavorable effect on real GDP in short run. Export of meat, Exchange rate, total labour, and GFCF were found is significant and its coefficient is positively related to real GDP in the short run. The result from the causality test revealed that there is bi-directional causality between meat export and real GDP and unidirectional causality between live animal, leather export and real GDP.

Keywords: Economic growth, Agricultural Export, time series, Co-integrations, VECM

DOI: 10.7176/EJBM/14-17-01

Publication date:September 30^th 2022