Determinants of Economic Growth in Ethiopia: An Application of Autoregressive Distributed Lag Model (ARDL)

Engidaw Sisay Negash, Professor, Daniela Federici


Ethiopia has grown on average 10 % annually for more than a decade and the country is the fifth fastest growing economy among the 188 IMF member countries. As such, growth in one sector of the economy does not automatically transform into equal benefits for the population. This study specified an empirical investigation of the relationship between the economic growth of Ethiopia and its determinant as studies in this area are inadequate. Alongside this backdrop, the data span for the study was the annual data from 1974 to 2013, and employed the Autoregressive Distributed Lag (ARDL) Approach to Co-integration. Error Correction Model (ECM) was used in order to examine the long-run and short run relationship between the dependent variable (real GDP) and its determinant independent variables.The findings of the bounds test confirmed that there was the steady long run association between the real GDP, Physical capital, human capital, export, foreign aid, external debt and inflation. Moreover, the empirical results reveal that physical capital, human capital, export, foreign aid and inflation were found the positive impact on economic growth both in the long run and short run, whereas external debt affects economic growth negatively but, statically significant both in the long run and short run. Conversely, the study reveals that total export of goods and service, foreign aid and inflation were statistically insignificant at 5% level on the GDP growth of Ethiopia in the long run.

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ISSN : 2251-1555