Remittance-Growth Nexus in Ethiopia: An Evidence from ARDL Bound Testing Approach

Abstract

The effect of international remittance inflows on economic growth has become a debating topic among policymakers. This study has used the data of 1980 to 2018. The result of the analysis revealed that the Long-run and short-run impact of remittance is negative at 1% and 5% significant level. This implies, the consumption compensatory behavior of remittance income. Other determinants of growth; such as gross capital formation, gross national saving, and foreign direct investment are appeared to be positive at < 5% significant level impacting growth in Ethiopia both in the long run and short run except for the short-run result of gross national saving is not available. While external debt and terms of trade were significant and negatively associated with growth in both the long run and short run at 1% significant level. The policy implications are, the development agents need to focus on controlling the informal flow of money (black market) through reducing transaction costs and training households receiving remittance to divert from consumption to investment. Thus, remittance inflows must be invested in the productive sector before it can positively impact economic growth and thus, for the ease of the more investment climate the better economic development.

Keywords: ARDL, Economic Growth, ECM, Ethiopia, Remittance.

DOI: 10.7176/JESD/12-23-03

Publication date: December 31^st 2021