Investigate on the Determinants of Economic Growth in Ethiopia

Abstract

The study examines the macroeconomics determinants of economic growth in Ethiopia measured by real gross domestic product (RGDP). We used time series data for a period of 27 years that is 1991 to 2017. Augmented Dickey-Fuller (ADF) test was used for the unit root test and the Autoregressive Distributed Lag under Bound test was also conducted to establish short and long run relationships between economic growth and its macroeconomics determinants. The result shows that there is co-integration, which establishes the existence of long run relationship among the variables. The results show that gross fixed capital formation, total labor force, total government expenditure and foreign direct investment are the main determinants of Ethiopia economic output in the long run where us total labor force and foreign direct investment are the main determinants of economic growth in Ethiopia in the short run. The study recommended that there is need for government to consciously develop the business environment by provision of necessary infrastructure, which will lower the cost of doing business in Ethiopia. There is also the need for the government to retain tight monetary and fiscal policies in order to fight inflation in the Ethiopian economy, since inflation have negative influence on investment and Ethiopia economic growth and finally, There is needs to put stringent policy in place to minimized strike in Ethiopia labor sector in order to enhance their performance to the nation economy.

Keywords: Macroeconomics; Unit Root; Cointegration; Ethiopia; Real Gross Domestic Product.

DOI: 10.7176/JESD/10-1-04