Government Spending for Economic Growth in Ethiopia

Abstract

This study is designed to address the relationship that can be revealed between real gross domestic product and various composition of government expenditure like:  agriculture, education, health, transport and communication, urban development and housing, total capital expenditure and total recurrent expenditure in Ethiopia. In doing so, it answers the research question: which composition of government expenditure promotes economic growth in Ethiopia? The sources of data being used in this study are purely of secondary data for the period between 1975-2011G. C as obtained from Ministry of Finance and Economic Development (MOFED) and various Federal and Regional Bureaus. The methodology used in this research is a Co-integration error correction model. The output of this research showed that expenditure on health and total capital expenditure are both positive and statistically significant in explain the growth of Ethiopian economy. However, Expenditure on agriculture, education, health, transport and communication, urban development and housing, and total recurrent expenditure are statically insignificant.

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