Infrastructure Development and Economic Growth in Ethiopia

Abstract

The study elucidates the mystery surrounding the belief that, infrastructure development induces economic growth. The relationship between infrastructure development and economic growth is investigated for Ethiopia during the period 1974/75-2014/15. Theoretically and empirically it has been tested that infrastructure affects economic growth either by reducing the cost of intermediate goods or through externality effect. To analyze the long run and short run dynamics between these variables the study applied ARDL; bounds tests, and ECM. The long run estimation shows both economic and social sector infrastructure development have a positive impact on economic growth. However, the bounds test doesn’t support the evidence that variables move together in the long run. Furthermore, the short run dynamics shows the speed of adjustment is too slow, only 6% disequilibrium corrected each year towards the long run path. Based on the findings the study highlights major issues policymakers should give due attention towards effective formulation and implementation of infrastructure development policies.

Keywords: Economic growth, Ethiopia, Infrastructure.