Investigating the Multivariate Granger Causality between Remittance, Government Expenditure and Economic Growth in Ethiopia

Abstract

Several studies argued that international remittances have often been contributed to a significant source of finance to upsurge domestic investment for developing countries. Against this backdrop, this current article analyses a causal interdependency between remittance, government expenditure, and economic growth in Ethiopia covering the period from 1982 to 2017 by applying Toda and Yamamoto and Granger causality tests. Moreover, the Johansen-Juselius and an Auto-regressive Distributed Lag (ARDL) bounds-test approach was utilized to test the long-run co-integration  relationship among the variables. Our findings confirmed that the series of variables has been jointly co-integrated in the long-run. The tests of the causality divulge that there was feedback in the causality between the remittance and economic growth in Ethiopia. We found that a unidirectional Granger causality links running from remittance to economic growth, and also a unidirectional causality running from government expenditure to economic growth. These causality results further suggested that the growth hypothesis which was assumed that the remittance and government expenditure was the main driving factor of determinants for economic growth in Ethiopia over the study periods and consequently, economic growth also the function of remittance and government expenditure.

Keywords: Remittances; Economic growth; Government Expenditure; Co-integration; Granger Causality; Ethiopia

JEL classification: C22; F24; F43; O55

DOI: 10.7176/JESD/11-16-17

Publication date:August 31^st 2020