The Impact of Remittance on Economic Growth of Ethiopia

Abstract

The purpose of this study was to investigate whether or not international remittances enhance economic growth in Ethiopia. Data for the period 1984-2017 from World Development Indicator and Ethiopia Ministry of Education annual statistical Bulletin was used. To investigate the impact international inflow remittances, foreign direct investment net inflow, inflation, general government final consumption expenditure, gross fixed capital formation, openness to international trade, human capital and population growth were also included. The study employed an aggregate Cobb-Douglas production function. Augmented Dickey Fuller tests were used to test for non Stationarity of the variables. It was found that all variables were integrated of order one. In addition, Johansen Cointegration test was employed to determine whether or not the variables were cointegrated. Error correction model was employed to estimate short – run and long run relationship using ordinary least square technique. The study found that in the long run General government final consumption expenditure, openness to international trade, human capital and Population growth where as in short run foreign direct investment net inflow had both positive and significant impact on economic growth. Additionally in the long run Inflow remittances, Inflation and foreign direct investment net inflows and in the short run inflation, Openness to international trade and Human capital (secondary school enrolment) had both negative and significant. This was in contrast with the expected result of positive and significance impact on economic growth rate. Gross fixed capital formation in long run where as remittance inflow, general government final consumption expenditure and human capital (secondary school enrolment) were found to be insignificant and no impact economic growth.

Keywords: Remittances, Economic growth, Error Correction Model (ECM), Augmented Dickey Fuller (ADF) test

DOI: 10.7176/JESD/10-17-01

Publication date:September 30^th 2019